When the U.S. dollar is strong relative to other currencies, which of the following is most likely to occur?

• A. U.S. exports become more expensive for foreign buyers, leading to a decrease in U.S. exports.
• B. Foreign goods become less affordable for Americans, resulting in decreased demand for imports.
• C. U.S. imports become more expensive for American consumers, leading to a decrease in imports.
• D. Foreign tourists find it more expensive to visit the United States, increasing tourism to the U.S.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a 'strong' currency: A strong U.S. dollar means that one dollar can buy more units of foreign currency than before.
2. Analyze the effect on U.S. exports: Since the dollar is strong, U.S. goods priced in dollars become more expensive for foreign buyers when converted to their local currency, which tends to reduce demand for U.S. exports.
3. Analyze the effect on U.S. imports: A strong dollar makes foreign goods cheaper for American consumers because they need fewer dollars to buy the same amount of foreign currency, which tends to increase demand for imports.
4. Consider the impact on tourism: Foreign tourists will find it more expensive to visit the U.S. because their currency buys fewer dollars, likely reducing tourism to the U.S., not increasing it.
5. Summarize the most likely outcome: The key effect of a strong dollar is that U.S. exports become more expensive and decrease, while imports become cheaper and increase.