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.

Question

Quizplus · Accepted Answer

When R increases, it means that it takes more dollars to buy a unit of foreign exchange. This means that the dollar has decreased in value relative to the foreign exchange, which is the definition of depreciation. Therefore, choice A is correct. Choices C and D are incorrect because devaluation and revaluation are typically used to refer to deliberate changes in the exchange rate by a government, whereas floating exchange rates are determined by market forces. Choice B is also incorrect because it implies that the dollar has increased in value, which is the opposite of what happens when R increases.

Suppose the Dollar Is Subject to a Floating Exchange Rate