In a perfectly floating exchange rate regime,according to the monetary approach to the exchange rate MAER,what would be the effect of a decrease in U.S.output growth by 3% on the dollar price of a Swiss franc $/SFr?
A) Swiss franc would depreciate against the dollar.
B) Swiss franc would appreciate against the dollar.
C) The exchange rate remains unaffected.
D) The dollar would appreciate against the Swiss Franc.

Question

Quizplus · Accepted Answer

In the monetary approach to the exchange rate (MAER), the exchange rate is determined by the relative money supplies in the two countries. A decrease in US output growth would lead to a decrease in the US money supply, which in turn would lead to a decrease in the demand for Swiss francs and an increase in the supply of dollars. This would cause the dollar to depreciate against the Swiss franc, leading to an appreciation of the Swiss franc against the dollar. Therefore, the correct answer is B.

In a Perfectly Floating Exchange Rate Regime,according to the Monetary