An increase in the exchange rate is called appreciation under the
A)fixed exchange rate system.
B)flexible exchange rate system.
C)contractionary monetary policy.
D)expansionary monetary policy.

Question

Quizplus · Accepted Answer

Under a flexible exchange rate system, the exchange rate is determined by market forces of supply and demand. An increase in demand for a country's currency will cause an appreciation of the currency, while a decrease in demand will cause a depreciation. Therefore, an increase in the exchange rate is called appreciation under a flexible exchange rate system.

Under a fixed exchange rate system, the exchange rate is fixed by the government or central bank, and there is no scope for market forces to determine the exchange rate.

Contractionary and expansionary monetary policies refer to actions taken by the monetary authority (usually the central bank) to decrease or increase the money supply and interest rates in the economy, respectively. While these policies can have an impact on the exchange rate in the short run, they do not directly determine the exchange rate.

An Increase in the Exchange Rate Is Called Appreciation Under