Consider the monetary transmission mechanism in an open economy.Other things being equal,a decrease in the domestic money supply leads to

Question

Quizplus · Accepted Answer

A decrease in the domestic money supply would lead to an increase in interest rates, which would cause an appreciation of the domestic currency. This, in turn, would make exports more expensive and imports cheaper, leading to a decrease in net exports and a reduction in aggregate demand. Therefore, option A is the best choice.

Consider the Monetary Transmission Mechanism in an Open Economy