Question

To temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a (an) ____ in investment flows to the United States. a. Increase, decrease, decrease b. Increase, increase, increase c. Decrease, decrease, increase d. Decrease, increase, increase

Answer 1

Answer:

D

Explanation:

depreciation occurs when the value of a currency falls relative to the value of another currency,

for example, if the exchange rate is $1 = 190 naira and after a period, exchange rate is $1 = 380.50 naira. it can be said that the naira has depreciated against the dollar

To mitigate against deprecation, contractionary policies should be carried out

contractionary policies reduces the money supply in the economy. When there is a reduction in money supply, interest rate increases and this encourages the flow of funds as it is more profitable to do business in that country