If the United States tightens its fiscal policy and eases up on monetary policy,the dollar tends to ________ in a way ________ by the PPP theory of exchange rates.

Question

Quizplus · Accepted Answer

Tightening fiscal policy can lead to a stronger dollar due to reduced government spending or increased taxes, while easing monetary policy can lead to lower interest rates. However, the PPP theory primarily focuses on price levels and inflation, not fiscal or monetary policy, so the appreciation is not predicted by PPP.

If the United States Tightens Its Fiscal Policy and Eases