Under a floating exchange rate regime, following an expansion in the money supply, monetary authorities will:
A)buy foreign currency in the foreign exchange market.
B)buy domestic currency in the foreign exchange market.
C)not intervene in the foreign exchange market.
D)be forced to reverse the monetary expansion.

Question

Quizplus · Accepted Answer

Under a floating exchange rate regime, the exchange rate is determined by market forces and not by government intervention. Therefore, the monetary authorities will not intervene in the foreign exchange market after an expansion in the money supply.

Under a Floating Exchange Rate Regime, Following an Expansion in the Money