Suppose the Federal Reserve releases a policy statement today which leads people to believe that the Fed will be enacting expansionary monetary policy in the near future. Everything else held constant,the release of this statement would immediately cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

Question

Quizplus · Accepted Answer

Expansionary monetary policy typically involves lowering interest rates, which makes U.S. assets less attractive to investors, decreasing their demand. This, in turn, leads to a depreciation of the U.S. dollar as investors sell off U.S. assets in favor of assets in other currencies with higher returns.

Suppose the Federal Reserve Releases a Policy Statement Today Which