If the Federal Reserve was to buy U.S. dollars on the foreign exchange market, a likely result will be:

Question

Quizplus · Accepted Answer

When the Federal Reserve buys U.S. dollars on the foreign exchange market, it increases the demand for the currency, leading to an increase in its value. Therefore, at least a temporary increase in the exchange value of the U.S. dollar is a likely result. Option (a) is incorrect because the dollar supply curve does not shift in this situation. Option (b) is incorrect because the exchange value of the dollar is likely to increase, not decline.

If the Federal Reserve Was to Buy U