Under the fixed rate regime foreign countries could hold their dollar exchange rates constant by
A) using tight monetary policy.
B) using expansionary fiscal policy.
C) negotiating with the central bank of the United States.
D) setting their domestic interest rate equal to the U.S. interest rate.
E) holding their exchange rates constantly pegged to the euro and yen.

Question

Quizplus · Accepted Answer

The correct answer is D because under a fixed rate regime, a country can hold its exchange rate constant by setting its domestic interest rate equal to the U.S. interest rate.

Under the Fixed Rate Regime Foreign Countries Could Hold Their