In the early 1980s,the Federal Reserve pursued a tight monetary policy.All else being equal,the impact of that policy was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European currencies.
A) Decrease,depreciate
B) Decrease,appreciate
C) Increase,depreciate
D) Increase,appreciate

Question

Quizplus · Accepted Answer

When the Federal Reserve pursues a tight monetary policy, it reduces the money supply and increases interest rates to slow down inflation. This makes holding US dollars more attractive to investors, increasing the demand for the dollar and causing its value to appreciate against other currencies. Therefore, the correct answer is D, as a tight monetary policy would increase interest rates in the United States relative to those in Europe and cause the dollar to appreciate against European currencies.

In the Early 1980s,the Federal Reserve Pursued a Tight Monetary