Under managed floating exchange rates, other things equal, the Federal Reserve could offset an appreciation of the dollar against the yen by
A) increasing the money supply, which promotes falling interest rates and net investment outflows.
B) increasing the money supply, which promotes rising interest rates and net investment inflows.
C) decreasing the money supply, which promotes falling interest rates and net investment outflows.
D) decreasing the money supply, which promotes rising interest rates and net investment inflows.

Question

Quizplus · Accepted Answer

Increasing the money supply tends to lower interest rates, encouraging investment outflows and potentially leading to a depreciation of the dollar, offsetting its initial appreciation against the yen.

Under Managed Floating Exchange Rates, Other Things Equal, the Federal