Suppose the United States is experiencing a balance of payments deficit. To prevent the exchange rate from depreciating, the U.S. Treasury must

Question

Quizplus · Accepted Answer

To prevent the exchange rate from depreciating when experiencing a balance of payments deficit, the U.S. Treasury would sell foreign currency and buy dollars. This action increases the demand for dollars and decreases the supply of dollars in the foreign exchange market, supporting the value of the dollar and preventing depreciation.

Suppose the United States Is Experiencing a Balance of Payments