Suppose the Target Exchange Rate Set by the Fed Is

question 87

Multiple Choice

Suppose the target exchange rate set by the Fed is 100 yen per dollar. If the demand for dollars temporarily increases, to maintain the target exchange rate, the Fed can

• A) sell dollars.
• B) buy dollars.
• C) violate interest rate parity.
• D) violate purchasing power parity.

---

Definitions:

Welfare Outcomes

The effects of policies or economic conditions on the well-being and quality of life of individuals or populations.

Equivalent Tariff

A tariff level that would give the same protective effect to the domestic producers as a given non-tariff barrier does.

Yacht Industry

The sector of the economy that is involved in the design, construction, and sale of yachts, ranging from luxury to small racing models.

Tax Burden

The measure of taxes that an individual or entity must bear, often expressed as a percentage of income or GDP.