Assume Floating Exchange Rates

question 50

Multiple Choice

Assume floating exchange rates.Suppose there are a 5% growth in U.S output and a 5% increase in foreign inflation.Then,which of the following will offset these changes?

• A) 10% increase in money supply.
• B) 10% decrease in money supply.
• C) 10% increase in the exchange rate.
• D) The two changes offset each other.

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