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Is stronger dollar good for economy?

NEW YORK - The U.S. dollar has strengthened against most other major currencies for much of the second half of the year. But would the nation's economy be better off if the mighty dollar weren't so mighty?

NEW YORK - The U.S. dollar has strengthened against most other major currencies for much of the second half of the year. But would the nation's economy be better off if the mighty dollar weren't so mighty?

Even with some recent declines in its value, the big picture remains the same: An index that measures the dollar's value relative to the Japanese, Canadian, British, Swedish and Swiss currencies, is still up more than 10 percent from its lows in March.

All the while, the U.S. economy has been wallowing in a deepening recession.

Does the strong dollar have anything to do with the nation's economic woes? What would be better for the economy right now - a stronger dollar or a weaker one?

Here are some questions and answers about the strength of the dollar.

Question:

Should we be rooting for a stronger or weaker dollar right now?

Answer:

In a broad sense, a weak dollar is probably favorable while the economy is ailing because it would make U.S. goods cheaper to consumers outside the country who buy with stronger currencies.

"The dollar is really a shock absorber," said Brian Bethune, economist at IHS Global Insight. "When domestic economic conditions are weak, it goes down to stimulate demand for U.S. products overseas."

Q:

So why have we seen such dollar strength in recent months?

A:

As the global economic outlook soured this year, investors flocked to the safest assets around: U.S. Treasury bills, notes and bonds. (In other words: investments in U.S. government debt.)

Because Treasury investments are denominated in dollars, this trend pushed up demand for greenbacks - and more demand translates into a stronger dollar.

Q:

How has that hurt the U.S.?

A:

The stronger dollar has come at a bad time. It made U.S. goods more expensive overseas as the economies of many major U.S. trading partners are mired in recession. That has weakened the demand for U.S. goods, which has caused exports - a rare bright spot in the U.S. economy earlier this year - to fall hard.

The drop in exports could lead to more job losses, at a time when employment is already declining.

Q:

What's the effect on U.S. businesses?

A:

It depends on how much of a company's revenue comes from outside the U.S.

Many companies with international scope have been lowering their profit outlooks due to the dollar's second-half strength. That's because the same amount of sales overseas translates to fewer dollars than in previous quarters.

Q:

What are the positives of a stronger dollar?

A:

The risks of inflation subside, and that's normally a good thing. Right now though, inflation is less of a worry than weak growth.

Q:

What's better for the U.S. consumer?

A:

There are several ways a stronger dollar can benefit regular folks.

The foreign goods we buy - like cars or handbags - become less expensive. Also, those who invest abroad can get better values on assets. It also makes it cheaper for Americans to travel abroad.