In an open economy, an expansionary monetary policy causes:
A) interest rates to rise and inflows of foreign capital.
B) interest rates to fall and inflows of foreign capital.
C) interest rates to rise and outflows of foreign capital.
D) interest rates to fall and outflows of foreign capital.
E) None of the above

Question

Quizplus · Accepted Answer

An expansionary monetary policy typically involves the central bank increasing the money supply, which leads to lower interest rates. Lower interest rates make domestic investments less attractive to foreign investors, leading to capital outflows as they seek higher returns elsewhere.

In an Open Economy, an Expansionary Monetary Policy Causes