If a country with floating exchange rates uses an expansionary monetary policy, the domestic interest rate: A) increases, demand for the domestic currency increases, supply of the domestic currency decreases, and the exchange rate increases. B) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases. C) falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases. D) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous.
If a country with floating exchange rates uses an expansionary monetary policy, the domestic interest rate: A) increases, demand for the domestic currency increases, supply of the domestic currency decreases, and the exchange rate increases. B) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases. C) falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases. D) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
If a country with floating exchange rates uses an expansionary |
|
|
|
A) |
increases, |
|
B) |
falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases. |
|
C) |
falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases. |
|
D) |
falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous. |
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