In a model with flexible exchange rates and capital mobility, monetary contraction in the U.S.is likely to cause
A)an appreciation of the U.S. dollar
B)an increase in the GDP of other countries
C)a decrease in the U.S. inflation rate
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Monetary contraction in the U.S. would likely lead to an appreciation of the U.S. dollar as higher interest rates attract foreign capital, a decrease in the U.S. inflation rate due to lower money supply, and potentially an increase in the GDP of other countries as their exports become more competitive against U.S. goods.

In a Model with Flexible Exchange Rates and Capital Mobility