When the Fed tightens U.S. monetary policy, domestic interest rates ________, making U.S. assets relatively more attractive to foreign investors, and ________ the equilibrium exchange rate.
A)rise; increasing
B)fall; increasing
C)fall; decreasing
D)rise; decreasing

Question

Quizplus · Accepted Answer

When the Fed tightens U.S. monetary policy, domestic interest rates rise, which attracts foreign investors. Foreign investors then want more dollars, which increases the equilibrium exchange rate.

When the Fed Tightens U