U.S. exports tend to increase when A) the value of the dollar rises. B) economic activity abroad is increasing. C) foreign GDPs are falling. D) U.S. prices are rising compared to the rest of the world.
The correct answer and explanation is:
The correct answer is B) economic activity abroad is increasing.
When economic activity in other countries is growing, there is typically an increase in demand for goods and services. This higher demand results in an expansion of international trade, with U.S. exports benefiting from increased foreign consumption. As foreign economies grow, they tend to produce more income and wealth, leading to greater purchasing power. Consumers and businesses in these countries are more likely to buy goods and services from the U.S. because they can afford to do so.
The growth in economic activity abroad can lead to increased demand for a variety of U.S. products, including manufactured goods, raw materials, and technological products. For instance, if a major trading partner’s economy is experiencing a boom, such as in the case of a rapidly growing country, the increased purchasing power will allow consumers and businesses in that country to demand more imports, including U.S. exports.
Additionally, as foreign economies grow, the exchange rate between the U.S. dollar and other currencies may adjust. A stronger foreign economy can sometimes lead to a depreciation of the U.S. dollar, which can make U.S. exports more competitive on the global market. However, the primary factor is the increase in demand due to economic growth in other countries.
Other options such as the value of the dollar rising (A) would generally make U.S. exports more expensive for foreign buyers, which tends to reduce exports. If foreign GDPs are falling (C), the opposite effect would occur, with less demand for imports, including U.S. goods. Similarly, if U.S. prices are rising compared to the rest of the world (D), foreign buyers might find U.S. goods less attractive due to higher costs. Thus, economic activity abroad increasing is the key factor that supports U.S. export growth.