If exports permanently decline, we would expect, in the medium run,
A)interest rates to increase and the rate of inflation to fall.
B)interest rates to fall and the rate of inflation to increase.
C)a decline in both the rate of inflation and interest rates.
D)no change in interest rates or the rate of inflation.
E)a decline in both the price level and interest rates.

Question

Quizplus · Accepted Answer

In the medium run, a permanent decline in exports would likely lead to a decrease in aggregate demand, which would reduce inflationary pressures and lead to lower interest rates as the central bank may ease monetary policy to stimulate the economy.

If Exports Permanently Decline, We Would Expect, in the Medium