If the U.S. dollar depreciates against the euro, what can the Fed do to keep the dollar's exchange rate stable?
A) decrease U.S. imports by increasing tariffs
B) nothing
C) buy dollars in the foreign exchange market
D) sell dollars in the foreign exchange market
E) buy euros in the foreign exchange market
Question 2
What is the equation of exchange? Suppose that real GDP and velocity are constant. In this case, what effect will an increase in the quantity of money have?
What will be an ideal response?