The monetary approach makes the general prediction that
A) the exchange rate, which is the relative price of American and European money, is fully determined in the long run by the relative supplies of those monies.
B) the exchange rate, which is the relative price of American and European money, is fully determined in the short run by the relative supplies of those monies and the relative demands for them.
C) the exchange rate, which is the relative price of American and European money, is fully determined in the short run and long run by the relative supplies of those monies and the relative demands for them.
D) the exchange rate, which is the relative price of American and European money, is fully determined in the long run by the relative supplies of those monies and the relative demands for them.
E) the money supply in the U.S. will adjust to European monetary equilibrium.

Question

Quizplus · Accepted Answer

The monetary approach predicts that the exchange rate between two currencies is determined in the long run by the relative supplies of those currencies and the relative demands for them. This is because in the long run, changes in the money supply in one country will be reflected in the exchange rate between the two currencies. However, in the short run, other factors such as interest rates and expectations about future economic conditions can also affect the exchange rate.

The Monetary Approach Makes the General Prediction That