-In the above figure, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Fed A) can buy dollars. B) can sell dollars. C) must decrease the nation's net exports. D) cannot permanently maintain the exchange rate target of 150 yen per dollar.

Question

Quizplus · Accepted Answer

The Fed cannot permanently maintain the exchange rate target if the demand for dollars decreases permanently, as it would require continuous intervention in the currency market, which is unsustainable in the long term.

-In the Above Figure, Suppose the Demand for Dollars Permanently