Which of the Following Can Help to Explain Why Higher

question 46

Multiple Choice

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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Definitions:

Alpha

In statistics, the threshold of probability at which the null hypothesis is rejected, often set at 0.05 or 5%.

Type I Error

The error that occurs in hypothesis testing when a true null hypothesis is incorrectly rejected, falsely indicating a significant effect or difference.

Alpha

A threshold value used in hypothesis testing that defines the maximum probability of committing a Type I error.

Type I Error

The erroneous dismissal of a true null hypothesis, often referred to as a "false positive."