Everything else fundamental remaining unchanged, the monetary approach predicts that a 5 percent cut in the money supply by the Fed will result in:
A)inflation in the U.S.economy.
B)a decrease in the market rate of interest in the U.S.
C)an increase in foreign investments by the Americans.
D)an appreciation of the U.S.dollar vis-à-vis other currencies.

Question

Quizplus · Accepted Answer

According to the monetarist approach, a decrease in the money supply will lead to a decrease in inflation, a decrease in investment and spending, and ultimately an increase in the value of the currency (an appreciation). Therefore, choice D is the correct answer.

Everything Else Fundamental Remaining Unchanged, the Monetary Approach Predicts That