As part of the "exchange rate effect of monetary policy," a lower money supply causes __________ of the domestic currency and thus __________ net exports.
A) appreciation; rising
B) appreciation; falling
C) depreciation; rising
D) depreciation; falling

Question

Quizplus · Accepted Answer

A lower money supply typically leads to higher interest rates, attracting foreign capital and causing the domestic currency to appreciate. An appreciated currency makes exports more expensive and imports cheaper, leading to a decrease in net exports.

As Part of the "Exchange Rate Effect of Monetary Policy