Tight monetary policy raises the real interest rate, which ________ the demand for dollars, ________ the supply of dollars, and ________ the equilibrium value of the dollar.
A)increases; increases; increases
B)decreases; decreases; decreases
C)increases; decreases; increases
D)decreases; increases; increases

Question

Quizplus · Accepted Answer

U.S interest rates rise during tight monetary policy and U.S. investments become more attractive to foreign investors, which increases demand for dollars on foreign exchange markets. At the same time, tight monetary policy decreases the supply of dollars and, therefore, increases the equilibrium value of the dollar.

Tight Monetary Policy Raises the Real Interest Rate, Which ________