Question

Other things the same, if the price level falls, people a. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases. b. decrease foreign bond purchases, so the supply of dollars in market for foreign-currency exchange increases. c. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases. d. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.

Answer 1

Other things the same, if the price level falls, people D: increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.

• Holding other factors, whenever there is a fall in the price level, there would be rise in foreign bond purchase.

• This usually result in increase in supply of dollars in the market and this aids foreign-currency exchange.

Therefore, option D is correct.

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