Which of the following statements is the MOST accurate? In general,under the monetary approach to the exchange rate
A)while the short-run interest rate does not depend on the absolute level of the money supply,continuing growth in the money supply eventually will affect the interest rate.
B)while the long-run interest rate does depend on the absolute level of the money supply,continuing growth in the money supply do not affect the interest rate.
C)while the long-run interest rate does not depend on the absolute level of the money supply,continuing growth in the money supply eventually will affect the interest rate.
D)the long-run interest rate does not depend on the absolute level of the money supply,and thus continuing growth in the money supply will not affect the interest rate.
E)while the short-run interest rate does not depend on the absolute level of the money supply,continuing decline in the money supply eventually will not affect the interest rate.

Question

Quizplus · Accepted Answer

The monetary approach to the exchange rate suggests that in the long run, the exchange rate is determined by the relative changes in money supplies between two countries. In the short run, interest rates play a role in the determination of the exchange rate. However, the short-run interest rate is not affected by the absolute level of the money supply. In the long run, continuing growth in the money supply will eventually affect the interest rate, which in turn will affect the exchange rate. Therefore, statement C is the most accurate.

Which of the Following Statements Is the MOST Accurate? in General,under