You have just noticed that the dollar appreciated and you suspect that U.S.policymakers were behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?
A)An increase in the money supply
B)A decrease in the money supply
C)A temporary increase in government purchases
D)A temporary decrease in taxes

Question

Quizplus · Accepted Answer

If policymakers wanted to appreciate the dollar, they would likely decrease the money supply, making the dollar more scarce and therefore more valuable. A temporary increase in government purchases or a decrease in taxes could lead to an increase in aggregate demand, ultimately leading to inflation and a depreciation of the currency.

You Have Just Noticed That the Dollar Appreciated and You