If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase euros:
A) they increase the number of dollars.
B) downward pressure is put on domestic interest rates.
C) the domestic money supply increases.
D) all of the answers given are correct.

Question

Quizplus · Accepted Answer

When the Fed purchases euros to maintain a fixed exchange rate with the dollar, they increase the number of dollars in circulation (A), which could put downward pressure on domestic interest rates (B), and ultimately increases the domestic money supply (C). Therefore, all of the answers given are correct (D).

If the Fed Decides to Maintain a Fixed Euro/dollar Exchange