<ol>
<li>You do not explain the context/source of your claim</li>
</ol>
<blockquote>
<p>falling dollar make goods cheaper for foreigners</p>
</blockquote>
<ol start="2">
<li><p>The claim is usually made in a <em>ceteris paribus</em> context. If everything else remains unchanged, such a shift in the exchange rate does make US goods relatively cheaper for holders of foreign currency.</p>
</li>
<li><p>Your reasoning does not start from a <em>ceteris paribus</em> context, but assumes that prices have to remain equal (Law of One Price) and calculates the exchange rate from that. Unsuprisingly, starting from this assumption prices will remain equal.</p>
</li>
</ol>

CC BY-SA 4.0
2022-02-13T15:45:33.230Z
2022-02-13T15:45:33.230Z
Giskard
<p>If the exchange rate between the dollar and euro is 1 to 1. Then a 100 million dollar Boeing jet should cost around 100 million euros. If inflation in the US is 5% (0% in Europe), then the Boeing jet would now be 105 million dollars in the US.</p>
<p>So, the dollar would fall 5% (.95 dollars for every euro)to equalize prices and make them equal in both countries. In my example at least, a falling dollar had no benefit, and the falling dollar made the prices equalize (.95 x 105 is around 100). How does falling dollar help, because aren’t prices always equal from purchasing power parity?</p>

<macroeconomics><foreign-exchange>
How does falling dollar make goods cheaper for foreigners?
Liam Coyne
# How does falling dollar make goods cheaper for foreigners?

(Asked by: username_0 on 2022-02-13)

If the exchange rate between the dollar and euro is 1 to 1. Then a 100 million dollar Boeing jet should cost around 100 million euros. If inflation in the US is 5% (0% in Europe), then the Boeing jet would now be 105 million dollars in the US.

So, the dollar would fall 5% (.95 dollars for every euro)to equalize prices and make them equal in both countries. In my example at least, a falling dollar had no benefit, and the falling dollar made the prices equalize (.95 x 105 is around 100). How does falling dollar help, because aren’t prices always equal from purchasing power parity?

**Tags:** macroeconomics, foreign-exchange


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## 1 answers

### Answer by username_1 on 2022-02-13. Score: 1

1. You do not explain the context/source of your claim

> falling dollar make goods cheaper for foreigners

2. The claim is usually made in a *ceteris paribus* context. If everything else remains unchanged, such a shift in the exchange rate does make US goods relatively cheaper for holders of foreign currency.
3. Your reasoning does not start from a *ceteris paribus* context, but assumes that prices have to remain equal (Law of One Price) and calculates the exchange rate from that. Unsuprisingly, starting from this assumption prices will remain equal.


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