If the central bank employs restrictive monetary policy, which of the following will be the most likely sequence of events?
A)higher real domestic interest rates, inflow of funds, appreciation of the domestic currency
B)lower real domestic interest rates, outflow of funds, appreciation of the domestic currency
C)lower real domestic interest rates, outflow of funds, depreciation of the domestic currency
D)lower inflation, lower nominal domestic interest rates, outflow of funds, depreciation of the domestic currency
E)lower inflation, lower nominal domestic interest rates, inflow of funds, depreciation of the domestic currency

Question

Quizplus · Accepted Answer

Restrictive monetary policy typically leads to higher real domestic interest rates as the central bank aims to reduce inflation and slow economic growth. Higher interest rates attract foreign investment, leading to an inflow of funds. This increased demand for the domestic currency causes it to appreciate.

If the Central Bank Employs Restrictive Monetary Policy, Which of the Following