Suppose that the Treasury Department wants the U.S. dollar to appreciate agai ...
Suppose that the Treasury Department wants the U.S. dollar to appreciate against the Mexican peso. The Treasury will order the Federal Reserve Bank of New York to dollars and Mexican pesos through the foreign exchange department of American commercial banks. The following graph shows the market for foreign exchange, where the supply curve depicts the supply of the U.S., dollar and the demand curve depicts the demand for the U.S. dollar.
Adjust the following graph to illustrate the actions by the Federal Reserve Bank of New York. The supply of dollars in the foreign exchange market , the demand for dollars , and thus the value of the dollar against the Mexican peso. As a result, the monetary base in the U.S. will because