South-Western College Publishing - Economics  
Maybe a Weak Dollar is not so Bad
Topic International Trade
Key Words Weak Dollar, Trade Deficit, and Economic Growth
Full Article

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Reference ID: A163322500

News Story Over half of the 9.1 million vehicles produced by General Motors last year were sole in foreign countries. This is a growing trend for American business firms. With the slump in the housing market companies like Caterpillar are seeing a fall in domestic sales and will be counting on sales of equipment and diesel engines in Europe, Asia and the Middle East to keep growing.

All of these sales are being helped by a weak dollar that makes American goods and services more competitive in foreign markets. Rather than hurting American companies, the weak dollar is actually providing a strong demand for many American goods.

American importers who buy from overseas are hurt by the weak dollar and American travelers in foreign countries have a less valuable currency in their wallet – but overall those negatives are being offset by strong export sales.

“The old notion that if the dollar’s bad, corporate profits have to go down is no longer correct,” said Howard Silverlatt, a senior analyst at Standard & Poor’s. “There’s a lot of growth going on in the rest of the world, and companies have to be there if they want to participate. There’s a lot to be sold.”

With an apparent shift to an export-driven economy more jobs will be created at home to keep up with the new demand. Fast growing economies in Europe are creating demand for more and more products and the weak dollar is making United States produced goods more attractive and encouraging American producers to keep more production at home and sell more goods abroad.

“Home-grown demand is being fed by home-grown production instead of foreign production,” said Chris Varvares, the president of Macroeconomic Advisors, an economic research firm in St. Louis. “That requires more domestic employment, and that’s better for the domestic economy.”

Questions
Discussion Questions:
1. Explain why the weak dollar makes American goods more competitive in foreign markets.
2. Explain why the weak dollar encourages American producers to keep more production at home and create more jobs in the U.S.
Multiple Choice/True False Questions:
1. A weak dollar makes foreign goods more expensive to American buyers.
  1. True
  2. False
2. As U.S. exports increase it should create more jobs in the U.S.
  1. True
  2. False
Source Jeremy Peters, “Rising Exports Putting Dent in Trade Gap,” The New York Times Online, May 14, 2007.
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