All else being equal, if the prospect of a recession leads the Federal Reserve to ease monetary policy, the equilibrium value of the exchange rate for the U.S. dollar will:
A)rise.
B)fall.
C)remain fixed.
D)either rise or fall depending on whether the supply or demand for dollars changes more.

Question

Quizplus · Accepted Answer

As the Federal Reserve eases monetary policy, it lowers domestic interest rates. This discourages foreign investment and causes a decrease in the exchange rate for the U.S. dollar.

All Else Being Equal, If the Prospect of a Recession