If Japan seeks to control its exchange rates so that ¥100 = $1, which of the following policies should it NOT maintain?
A) interest rates that provide the same return as alternative international rates
B) a stable rate of price level changes that will not cause currency depreciation or appreciation
C) a willingness to raise interest rates when its currency begins to depreciate
D) a willingness to raise price levels

Question

Quizplus · Accepted Answer

If Japan seeks to maintain an exchange rate of ¥100 = $1, it should not be willing to raise price levels. Higher price levels would cause currency appreciation, which would make it more difficult to maintain the desired exchange rate. Therefore, (D) is the policy that Japan should not maintain.

If Japan Seeks to Control Its Exchange Rates So That