Posted by Rm on Wednesday, April 16, 2008 at 10:37pm.
Europe is not a country. It's a continent. The European Union is made up of many independent countries that have agreed to use a joint currency -- the euro.
Draw a demand-supply graph for dollars. Put dollars (Q) in the x-axis, put Euros (P) on the y-axis. Demand for dollars is the willingness of people to purchase Dollars with with Euros. The supply of dollars is the willingness of people to sell their cache of dollars for Euros.
So What if, in your example, Europeans lose confidence in the Dollar and what it can purchase, and want to trade their Dollars for Euros. There will be in Increase in supply of dollars. Shift the supply curve outward. Price for dollars drops.
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