-Refer to Exhibit FF-2. If the U.S. government wants to maintain the foreign exchange rate at 100 yen = $1, and the supply curve of dollars on the foreign exchange market shifts from S to S^', the government must A) appreciate the dollar B) depreciate the exchange rates of other countries C) supply dollars to the foreign exchange market D) demand dollars from the foreign exchange market E) depreciate the dollar

Question

Quizplus · Accepted Answer

To maintain the exchange rate at 100 yen = $1 when the supply of dollars increases (shifting the supply curve from S to S^'), the government must supply dollars to the foreign exchange market to absorb the excess supply and keep the exchange rate stable.