Other things equal, to temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could ____ the U.S.money supply, which would promote a (an) ____ in U.S.interest rates and a (an) ____ in investment flows to the United States.
A) increase, decrease, decrease
B) increase, increase, increase
C) decrease, decrease, increase
D) decrease, increase, increase

Question

Quizplus · Accepted Answer

To offset a depreciation in the dollar's exchange value, the Fed can decrease the US money supply, which would increase interest rates due to a decrease in the supply of money. Higher interest rates would attract foreign investment flows to the US, prompting an increase in investment flows to the country.

Other Things Equal, to Temporarily Offset a Depreciation in the Dollar's