Under a Flexible Exchange Rate System, Which of the Following

question 37

Multiple Choice

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound) ?

• A) An economic boom occurs in England, inducing English consumers to buy more American-made automobiles, trucks, and computer products.
• B) Real interest rates in the United States fall lower than real interest rates in England.
• C) Restrictive monetary policy in the United States causes inflation to be lower than in England.
• D) Attractive investment opportunities in the United States induce English investors to buy stock in U.S. firms.

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Definitions:

Market Equilibrium

A state in which market supply and demand balance each other, and, as a result, prices become stable.

Competitive Industry

A sector characterized by many participants striving to offer better products or services than their rivals.

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices.

Market Equilibrium

A situation in a market where the quantity of a good or service supplied matches the quantity demanded, leading to a stable price.