Americans Vacation Abroad
The question
Assume the foreign exchange market for the US dollar is initially in equilibrium. A budget airline launches cheap new routes to the fictional country of Selvenia, and large numbers of US tourists begin traveling there, paying for hotels and meals priced in the Selvenian currency. Show the effect of this travel in the foreign exchange market for the US dollar, holding all else constant. Show the effect on the Foreign Exchange Market (USD) graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Americans Vacation Abroad: the worked answer
On the Foreign Exchange Market (USD) graph, Supply of dollars (S$) shifts right.
Why Supply of dollars (S$) shifts right
To pay for Selvenian hotels and meals, US tourists must exchange dollars for the Selvenian currency. Americans exchanging dollars for foreign currency are the source of the supply of dollars in this market, so the surge in outbound travel raises the quantity of dollars supplied at every exchange rate and shifts the supply of dollars to the right. Foreigners' willingness to acquire dollars has not changed, so the demand for dollars does not move.
What happens to the equilibrium
The dollar depreciates and the equilibrium quantity of dollars traded increases.
The mistake students make on this one
The usual error is shifting the demand for dollars right because the tourists are spending dollars and the graph is labeled the market for dollars. Spending dollars in Selvenia means selling them for Selvenian currency, which puts more dollars onto the market and moves the supply curve.
On exam day
Ask which currency the traveler needs once they land. US tourists abroad need foreign currency, so they supply dollars: S$ right and the dollar depreciates.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when Supply of dollars (S$) shifts right and every other curve on the Foreign Exchange Market (USD) graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
More Foreign Exchange Market (USD) scenarios
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