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AAEC 2305 Fundamentals of Ag Economics - page 7 / 27

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(continued)

With lower interest rates, the value of the dollar weakens and makes U.S. products more price competitive.

Example – assume it costs 600 German Marks to purchase a ton of American wheat valued at $200 (an exchange rate of 3:1)

Suppose monetary policy drives the value of the dollar down to a 2:1 exchange rate (now it only takes two German marks to buy one dollar)

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