An increase in the money supply will result in a lower exchange rate because
A)the real interest rate on domestic assets will fall relative to the rates on foreign assets.
B)the real interest rate on domestic assets will rise relative to the rates on foreign assets.
C)it will lead to faster domestic growth, resulting in an increase in exports to other countries.
D)it will lead to lower inflation, thereby increasing the demand for domestic currency.

Question

Quizplus · Accepted Answer

When the money supply increases, the real interest rate on domestic assets falls relative to rates on foreign assets. This leads to a decrease in demand for the domestic currency and an increase in supply, resulting in a lower exchange rate.

An Increase in the Money Supply Will Result in a Lower