The Fed wants to keep the dollar at 0.80 euros per dollar. If the demand for dollars increases,
A) the Fed sells dollars to increase the supply of dollars and maintain the exchange rate.
B) the Fed conducts persistent intervention on one side of the market.
C) the Fed buys dollars to increase the supply of dollars and maintain the exchange rate.
D) the Fed buys dollars to decrease the supply of dollars and maintain the exchange rate.
E) the Fed sells dollars to decrease the supply of dollars and maintain the exchange rate.
Question 2
If the currency drain ratio is zero, which of the following situations leads to the greatest total increase in the quantity of money?
A) an increase in the monetary base of 250,000 when the desired reserve ratio is 15 percent
B) an increase in the monetary base of 100,000 when the desired reserve ratio is 5 percent
C) an increase in the monetary base of 120,000 when the desired reserve ratio is 10 percent
D) an increase in the monetary base of 100,000 when the desired reserve ratio is 50 percent
E) an increase in the monetary base of 200,000 when the desired reserve ratio is 20 percent
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