According to the Monetary Approach,expectation Can Play a Major Role

question 51

Multiple Choice

According to the monetary approach,expectation can play a major role in the determination of exchange rate.If between US and EMU there is a significant interest rate differential (US interest rate is significantly higher than the EMU interest rate) but at the same time dollar is also expected to depreciate in the future by more than the positive interest differential,then which of the following is most likely to happen?

• A)Dollar will depreciate
• B)Dollar will appreciate
• C)There will be a significant increase in the supply of Euro in the US
• D)There will be a significant decrease in the demand for Euro

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Definitions:

Money Supply Curve

A representation showing the relationship between the money supply and the interest rate, inverting the money demand curve's concept.

Planned Investment

Investments that businesses intend to make in the future, often based on projected economic conditions or expected returns.

Money Supply

The total amount of money available in an economy at a specific time, including physical currency and demand deposits.

Investment Curve

A graphical representation in economics showing the relationship between the rate of investment and factors such as interest rates, expected returns, or other economic variables.