Exhibit 15.1

At the Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade deficit. Answer the following question(s) on the basis of this information.
-Refer to Exhibit 15.1.Other things equal, to help drive the dollar's exchange value downward, the Federal Reserve would
A) reduce taxes.
B) increase taxes.
C) decrease the money supply.
D) increase the money supply.

Question

Exhibit 15.1

At the Plaza Accord of 1985, the Group-of-Five nations agreed to drive the value of the dollar downward (i.e., depreciation) so as to help reduce the U.S. trade deficit. Answer the following question(s) on the basis of this information.
-Refer to Exhibit 15.1.Other things equal, to help drive the dollar's exchange value downward, the Federal Reserve would
A) reduce taxes.
B) increase taxes.
C) decrease the money supply.
D) increase the money supply.

Quizplus · Accepted Answer

To help drive the dollar's exchange value downward, the Federal Reserve would increase the money supply. This would lead to an increase in the supply of dollars in foreign exchange markets and a decrease in their value relative to other currencies, thereby making exports cheaper and imports more expensive.

Exhibit 15.1 At the Plaza Accord of 1985, the Group-Of-Five Nations Agreed