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value of the dollar on the foreign exchange market

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Economists have made the following projections for the coming year:
Exports $540B, imports $710B, capital outflow $320, capital inflow $420. As the year is unfolding, it turns out that these projections are proving to be quite accurate

(a) Explain what will gradually happen to the value of the dollar on the foreign exchange market as result.

(b) Given that there is pressure on the dollar to move in the direction you described in (a), what actions could policymakers (both fiscal government and central bank) take to offset this pressure (in other words, to keep the foreign exchange value of the dollar stable)?

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Solution Summary

The value of the dollar on the foreign exchange market is assessed. What will gradually happen to the value of the dollar on the foreign exchange market as result is explained.

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(a) Explain what will gradually happen to the value of the dollar on the foreign exchange market as result.

As a result of there being more money leaving the country than that coming in, the value of the dollar would decrease in value. This is because those with the dollar as their base ...

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