What effect does a depreciating dollar have on US exports for agricultural commodities like corn? When the dollar depreciates, our goods become relatively cheaper to foreign countries. As the law of demand predicts, a lower price will lead foreign buyers to buy more of our corn. This changes the number of buyers in US markets and the price of corn increases. It isn't just the American demand for cheaper fuel that has pushed commodity prices higher. When US citizens buy goods from China such as toys or cars from Japan, the dollar falls in value as more and more dollars are necessary to make the trade beneficial to both parties. To see the graph in large view, simply click on the graph. I start with the assumption that the 2 USD are trades for 1 Euro and 200 million dollars are exchanged for 100 Euros. As US citizens demand for foreign goods, they demand more Euros and supply a larger quantity of dollars. As a result, the exchange rate raises for $2 to $3 for Euros and the dollar depreciates from 2/1 to 3/1. The Euro appreciates as Europeans now pay 33 cents for what used to cost 50 cents. US goods are now relatively cheaper and demand for corn increases. Mutually beneficial trade has caused corn to raise in price as much as US demand for renewable energy.
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