Restrictive monetary policy in the U.S.

Question

Quizplus · Accepted Answer

Restrictive monetary policy raises interest rates in the U.S., which makes U.S. assets more attractive to foreign investors. This increases the demand for dollars, thus increasing its value relative to other currencies (answer B). As a result of higher interest rates, borrowing becomes more expensive, which leads to reduced consumer and business spending, consequently lowering the GDP (answer A). The increase in the value of the dollar makes U.S. exports more expensive for foreign buyers, reducing U.S. net exports (answer C) - this is why only answer D encompasses both correct statements.

Restrictive Monetary Policy in the U.S