AP Macroeconomics Question 417: Answer and Explanation
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4. How does an increasing national debt impact the market for U.S. dollars and the value of the dollar with respect to other currencies?
MARKET FOR THE DOLLAR VALUE OF THE DOLLAR
- A. Increased demand Appreciating
- B. Increased supply Appreciating
- C. Decreased supply Depreciating
- D. Decreased demand Depreciating
- E. Increased demand Depreciating
Correct Answer: A
A-Rising national debt increases interest rates and attracts foreign investment in U.S. financial assets. Greater demand for dollars appreciates the dollar.