In the early eighties, the Federal Reserve pursed 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?
Correct answer: D. increase; appreciate
- A. decrease; depreciate
- B. decrease; appreciate
- C. increase; depreciate
- D. increase; appreciate
Explanation
A tight monetary policy raises U.S. interest rates relative to Europe, attracting foreign capital and increasing demand for dollars. The dollar therefore appreciates against European currencies.
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