Considering only its direct effect on income, expansionary monetary policy tends to:
A)be ambiguous with respect to the exchange rate, while decreasing the trade deficit.
B)be ambiguous with respect to the trade deficit, while increasing the exchange rate.
C)decrease the exchange rate and increase a trade deficit.
D)increase the exchange rate and decrease a trade deficit.

Question

Quizplus · Accepted Answer

Expansionary monetary policy typically leads to a decrease in interest rates, which tends to reduce the value of a country's currency (decrease the exchange rate). A lower exchange rate makes a country's exports cheaper and imports more expensive, potentially increasing the trade deficit as imports increase and exports may not increase proportionally.

Considering Only Its Direct Effect on Income, Expansionary Monetary Policy