Question

Which of the following monetary policy tools would most likely result in a decrease in the value of the dollar and a decrease in real interest rates?

a. Open market purchase of U.S. government bonds by the Fed.
b. Open market sale of U.S. government bonds by the Fed.
c. Taxes increase.
d. Discount rate increases
e. Government spending decreases.

Answer 1

The correct answer is D. If discount rates increase there will be less money made from taxes. With less tax revenue the dollar will be worth less.