The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar
A) depreciation, higher exports, and lower imports.
B) depreciation, lower exports, and higher imports.
C) appreciation, lower exports, and higher imports.
D) appreciation, higher exports, and lower imports.

Question

Quizplus · Accepted Answer

Restrictive monetary policy leads to higher interest rates, attracting foreign capital, causing the dollar to appreciate. This makes exports more expensive and imports cheaper, leading to lower exports and higher imports.

The Short Run Sequence of Events Following an Unanticipated Shift