How Fiscal and Monetary Policies Affect the Exchange Rate


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How can a fiscal policy affect exchange rates?

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1. Predict the effect on the exchange rate when the Federal Reserve uses monetary policy to increase income or available money.

2. When expansionary monetary policy leads to a decrease in interest rates, the exchange rate _____.

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About This Quiz & Worksheet

The quiz will mainly deal with the different results fiscal policy can achieve. The questions will present you with particular policies. You will then need to select the correct results common theories predict.

Quiz & Worksheet Goals

The assessment will test you on the following definitions and topics:

  • Fiscal policy
  • Exchange rates
  • The Federal Reserve
  • Contractionary policy
  • Foreign currencies and imports

Skills Practiced

The quiz will help you practice the following skills:

  • Reading comprehension - ensure that you draw the most important information from the related fiscal policy lesson
  • Making connections - use understanding of the concept of fiscal policy
  • Interpreting information - verify that you can read information regarding fiscal policy and interpret it correctly
  • Defining key concepts - ensure that you can accurately define main phrases, such as fiscal policy and monetary policy

Additional Learning

Finish the quiz and then head over to the related lesson How Fiscal and Monetary Policies Affect the Exchange Rate. The lesson covers the following objectives:

  • Understanding the role of fiscal and monetary policy
  • Explaining the relationship between fiscal policy and exchange rates
  • Characterizing income changes, price changes, and interest rates
  • Describing contractionary policies
  • Clarifying the effects of expansionary and contractionary policies