Under the flexible exchange rate, lowering the price of a foreign currency will
A) allow the expansion of monetary policy without causing inflation.
B) decrease the foreign country's output.
C) prevent a foreign price increase from causing deflation at home.
D) cause a home price increase to be exported to the foreign markets.
E) cause a "beggar-thy-neighbor" effect.

Question

Quizplus · Accepted Answer

Lowering the price of a foreign currency will make the domestic currency more expensive, which will lead to a decrease in exports and an increase in imports. This will cause a decrease in aggregate demand in the foreign country, which will lead to a decrease in output.

Under the Flexible Exchange Rate, Lowering the Price of a Foreign