Answer to Question #74070 in Economics for ghady

Question

Multinationals generally have production plants in a number of countries. Consequently, they can move production from expensive locations to cheaper ones in response to various economic developments—a phenomenon called outsourcing when a domestically based firm moves part of its production abroad. If the dollar depreciates, what would you expect to happen to outsourcing by American companies? Explain and provide an example.

Answer 1

If the dollar depreciates, then we would expect American companies to increase using outsourcing, because the value of their production produces abroad will be higher when imported to U.S., so the profits will be higher.