Under managed floating exchange rates,if the rate of inflation in the United States is less than the rate of inflation of its trading partners,the dollar will likely:
A) Appreciate against foreign currencies
B) Depreciate against foreign currencies
C) Be officially revalued by the government
D) Be officially devalued by the government

Question

Quizplus · Accepted Answer

Under managed floating exchange rates, the exchange rate is allowed to fluctuate freely but is also influenced by the government through various policies. If the rate of inflation in the United States is less than the rate of inflation of its trading partners, it means that the purchasing power of the dollar is increasing relative to foreign currencies. This will make US goods more expensive for foreign buyers and foreign goods cheaper for US buyers, leading to an increase in US exports and a decrease in imports, which will increase the demand for dollars and cause its value to appreciate against foreign currencies.

Under Managed Floating Exchange Rates,if the Rate of Inflation in the United