Under a system of flexible exchange rates, an increase in the supply of foreign exchange (an increase in the demand for the dollar) will cause the

Question

Quizplus · Accepted Answer

An increase in the supply of foreign exchange means there are more foreign currencies available in the market, which leads to an increase in the demand for the dollar. According to the law of supply and demand, an increase in demand leads to an increase in price. Therefore, the dollar will appreciate (rise in value) relative to other currencies.

Under a System of Flexible Exchange Rates, an Increase in the Supply