Because the Fed is not constrained by a fixed exchange rate, it is free to set monetary policy without concerns about the effect on the value of the dollar.
a. How would the Fed?s actions during the
2007?2009 financial crisis have been constrained if the exchange rate had been fixed?
b. The value of the dollar actually increased at some points during the 2007?2009 recessions. Is this increase the result you would have expected? If not, how can you explain this increase?
This question was answered on: Jul 11, 2017
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