Which of the following can help to explain why higher inflation may lead to currency appreciations?
(a) The interest rate is not the prime target of monetary policy.
(b) Most central banks adjust their policy interest rates expressly so as to keep inflation in check.
(c) Central banks increase the money supply leading to overshooting of the exchange rate.
(d) Inflation will increase the purchasing power of a currency.
(e) The world market does not adjust their currency trade to reflect inflation
Which of the following can help to explain why higher inflation may lead to currency appreciations?
(a) The interest rate is not the prime target of monetary policy.
(b) Most central banks adjust their policy interest rates expressly so as to keep inflation in check.
(c) Central banks increase the money supply leading to overshooting of the exchange rate.
(d) Inflation will increase the purchasing power of a currency.
(e) The world market does not adjust their currency trade to reflect inflation
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Related questions
Which of the following statements is accurate in regards to the US dollar:
| A. |
The central bank is responsible for printing the domestic currency and the value of the currency is adjusted to maintain a fixed level to another currency. |
| B. |
The central bank has no ability to print the domestic currency and dollarization was adopted to minimize domestic inflation. |
| C. |
Banks are responsible for printing the domestic currency and there is a floating exchange rate. |
| D. |
The central bank (e.g. Federal Reserve) is responsible for printing the domestic currency and there is a floating exchange rate. |
Suppose that monetary policy in the United States leads to an increase in interest rates relative to those in Japan. Which of the following will occur in the capital account:
| A. |
The demand for yen will increase. |
| B. |
The dollar will appreciate relative to the yen. |
| C. |
The supply of dollars will increase. |
| D. |
The dollar will depreciate relative to the yen. |
An expansionary monetary policy by the Fed would tend to:
| A. |
Lower the U.S. inflation rate, make exports cheaper, make imports more expensive, and raise the value of the dollar. |
| B. |
Raise the U.S. inflation rate, make exports more expensive, make imports cheaper, and lower the value of the dollar. |
| C. |
Raise the U.S. inflation rate, make exports cheaper, make imports more expensive, and raise the value of the dollar. |
| D. |
Lower the U.S. inflation rate, make exports more expensive, make imports cheaper, and lower the value of the dollar. |
