If the Federal Reserve adopts a contractionary monetary policy, it increases domestic interest rates, which results in an increase in the exchange value of the dollar.

Question

Quizplus · Accepted Answer

A contractionary monetary policy typically involves increasing interest rates to reduce inflation and slow economic growth. Higher interest rates attract foreign investors looking for higher returns on investments, which increases demand for the dollar, thereby increasing its exchange value.

If the Federal Reserve Adopts a Contractionary Monetary Policy, It