All else equal, if the Federal Reserve decreases the money supply, interest rates will _____ and the dollar will _____ against other currencies.

Question

Quizplus · Accepted Answer

When the Federal Reserve decreases the money supply, interest rates increase because there is less money available for borrowing. A higher interest rate makes the dollar more attractive to foreign investors, leading to an appreciation of the dollar against other currencies.

All Else Equal, If the Federal Reserve Decreases the Money