In the short run, a country's exchange rate is determined by:
A) monetary policy.
B) purchasing power parity.
C) the domestic inflation rate.
D) supply and demand.

Question

Quizplus · Accepted Answer

In the short run, a country's exchange rate is primarily determined by the supply and demand of its currency in the foreign exchange market. Factors such as international trade, capital flows, and speculation can influence the demand for a currency, while factors such as the country's economic performance and monetary policy can impact the supply of the currency. While inflation rates and purchasing power parity may have some influence on exchange rates in the long run, they are not the primary drivers in the short run.

In the Short Run, a Country's Exchange Rate Is Determined