Question

If American auto companies make a breakthrough in automobile technology and are able to produce a car that gets 200 miles to the gallon, what will happen to the U.S. dollar exchange rate?

Short answer

The US exchange rate will appreciate.

Step-by-step solution

Step 1.Concept of introduction

Car Industries considered as one of the vital fragments in the business world, the car ventures are the ones that offer different classes of vehicles to purchasers. This industry faces vicious contest and needs to continually update its items to stay in force. The set-up cost is additionally high for such firms.

Step 2.Explanation

Mechanical progressions straightforwardly sway the economy of any country. Assuming Americans auto organizations foster any prevalent auto advances which support the speed of the vehicle widely, there would be appeal for such vehicles inside the country as well as abroad, bringing about higher commodities for America. These higher products mean more result will be created in America, expanding the work open doors, and accordingly, more cash would stream in the country because of exchange excess. This will help its cash esteem and the U.S. conversion scale will go up comparable to different nations, for example others should do without more cash in their homegrown money against each American dollar.

Step 3.Final answer

The dollar will appreciate. The increase in U.S. productivity raises the expected future exchange rate f thus raises the expected return on dollar assets at any exchange rate. The resulting rightward shift of the demand curve leads to a rise in the equilibrium exchange rate.