When a country uses a flexible exchange rate and its transactions increase the supply of its currency, the country's
A) products become more expensive to others.
B) currency depreciates.
C) currency appreciates.
D) trade deficit increases.

Question

Quizplus · Accepted Answer

According to the law of supply and demand, an increase in supply leads to a decrease in price. In the case of a currency, an increase in supply leads to a depreciation of the currency. Therefore, if a country's transactions increase the supply of its currency, the currency will depreciate in value.

When a Country Uses a Flexible Exchange Rate and Its