Under managed floating exchange rates if the rate of inflation in the United States is less than the rate of inflation of its trading partners the dollar will likely ?
Correct answer: A. appreciates against foreign currencies
- A. appreciates against foreign currencies
- B. depreciates against foreign currencies
- C. be officially revalued by the government
- D. be officially devalued by the government
Explanation
Lower U.S. inflation makes U.S. goods relatively cheaper than those of its trading partners, increasing demand for U.S. exports and dollars. Under a managed float, this pressure normally causes the dollar to appreciate rather than prompting an official revaluation.
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