Question

Suppose the president of the united states announces a new set of reforms that includes a new​ anti-inflation program. assuming the announcement is believed by the​ public, what will happen to the exchange rate for the u.s.​ dollar?

Answer 1

Answer:
The dollar will appreciate. Because expected U.S. inflation falls as a result of the announcement, there will be an expected appreciation of the dollar and so the expected return on dollar assets will rise. As a result, the demand curve will shift to the right and the equilibrium value of the dollar will rise.