When the Fed ________, the U.S.foreign exchange rate falls.
A) sells government securities
B) buys government securities
C) raises the interest rate
D) raises taxes on interest income
E) increases the size of the multiplier

Question

Quizplus · Accepted Answer

When the Fed buys government securities, it increases the money supply, which can lead to a decrease in interest rates and a depreciation of the U.S. dollar, causing the foreign exchange rate to fall.