Suppose the dollar is subject to a floating exchange rate system and that R is the number of dollars per unit of foreign exchange.If R increases,then the dollar
A)depreciates.
B)appreciates.
C)is devalued.
D)is revalued.
E)Both A and C.

Question

Quizplus · Accepted Answer

When R increases, it means that more dollars are required to purchase one unit of foreign exchange. This implies that the demand for the dollar relative to foreign exchange has decreased, causing the value of the dollar to depreciate. This is because a higher supply of dollars in the foreign exchange market leads to a decrease in the exchange rate of the dollar, which means it is losing value in comparison to foreign exchange. Therefore, the correct choice is A.

Suppose the Dollar Is Subject to a Floating Exchange Rate