Which of the following result from a change in the money supply brought about by an open market purchase?
A) lower interest rate, higher exchange rate, decreased demand for investment and net exports
B) higher interest rate, higher exchange rate, increased demand for investment and decreased demand for net exports
C) lower interest rate, lower exchange rate, increased demand for investment and net exports
D) higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports

Question

Quizplus · Accepted Answer

An open market purchase by the central bank increases the money supply, leading to lower interest rates. Lower interest rates reduce the relative return on assets denominated in that currency, causing a reduction in the exchange rate. With lower interest rates, there is increased demand for investment, and with a lower exchange rate, exports become cheaper and more competitive, leading to increased demand for net exports.

Which of the Following Result from a Change in the Money