Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 6 Chinese yuan, but it finds that the value of yuan is depreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?
A) Increase government spending within the U.S.
B) Buy U.S. dollars.
C) Sell U.S. dollars.
D) Increase the money supply in the U.S.

Question

Quizplus · Accepted Answer

To reverse the trend of the yuan depreciating against the U.S. dollar, the U.S. government or its central bank (the Federal Reserve) could sell U.S. dollars and buy yuan. This action increases the demand for yuan relative to the U.S. dollar, thereby appreciating the value of the yuan against the dollar.