Under managed floating exchange rates,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 typically leads to lower interest rates, which can result in capital outflows and a depreciation of the currency, counteracting the appreciation of the dollar.

Under Managed Floating Exchange Rates,the Federal Reserve Could Offset an Appreciation