When the Fed is pursuing expansionary monetary policy it will tend to reduce the demand for the dollar and increase net exports, other things equal.

Question

When the Fed is pursuing expansionary monetary policy it will tend to reduce the demand for the dollar and increase net exports, other things equal.​

Quizplus · Accepted Answer

When the Fed pursues expansionary monetary policy, it increases the money supply, which reduces the interest rate and makes the domestic currency less attractive to foreign investors. This leads to a decrease in the exchange rate of the dollar, making exports cheaper and more attractive to foreign buyers. As a result, net exports increase, which in turn, boosts domestic economic activity.

When the Fed Is Pursuing Expansionary Monetary Policy It Will