Question

Other things the same, if the price level rises, people

a. increase foreign bond purchases, so the dollar appreciates.
b. increase foreign bond purchases, so the dollar depreciates.
c. increase domestic bond purchases, so the dollar appreciates.
d. increase domestic bond purchases, so the dollar depreciates.

Answer 1

The correct answer is b. increase foreign bond purchases, so the dollar depreciates.

Step-by-step explanation:

The correct answer is b. increase foreign bond purchases, so the dollar depreciates.

When the price level rises, people tend to increase their demand for foreign bonds. By purchasing more foreign bonds, they are supplying more of their domestic currency in exchange for foreign currency. This increased supply of domestic currency and decreased demand for foreign currency leads to a depreciation of the dollar.