The monetary approach to exchange rates describes:
A) long-run relationships between money, prices, and exchange rates.
B) a short-run relationship between exchange rates and interest rates.
C) a short-run measure of fluctuations in exchange rates.
D) a theory based on the idea that exchange rates are constant in the long run.

Question

Quizplus · Accepted Answer

The monetary approach to exchange rates describes long-run relationships between money, prices, and exchange rates. It suggests that changes in money supply can affect the domestic price level, which in turn affects the exchange rate in the long run. The theory emphasizes the importance of fundamental economic variables in determining exchange rates over time.

The Monetary Approach to Exchange Rates Describes