When traders perceive a permanent money supply adjustment, long-term nominal interest rates ___ affected, the expected exchange rate ____ affected, and the spot exchange rate _____ affected.
A) are not; is; is
B) are; is; is not
C) are not; is not; is not
D) are; is not; is

Question

Quizplus · Accepted Answer

When traders perceive a permanent money supply adjustment, long-term nominal interest rates are not affected because they reflect long-term inflation expectations, which are not impacted by temporary monetary policy changes. The expected exchange rate is affected as traders adjust their expectations of future currency values based on the new money supply information. The spot exchange rate is also affected as immediate reactions to the change in money supply alter currency values.

When Traders Perceive a Permanent Money Supply Adjustment, Long-Term Nominal