Which of the following result from a change in the money supply brought about by an open market sale?
A) lower interest rate, higher exchange rate, decreased demand for investment and net exports
B) higher interest rate, higher exchange rate, decreased 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 sale by the central bank decreases the money supply which leads to a shortage of funds and a higher demand for borrowing. This results in higher interest rates. As investors seek out interest-bearing deposits in the country, the exchange rate appreciates. Additionally, higher interest rates lead to a decrease in investment demand which ultimately leads to decreased demand for net exports.

Which of the Following Result from a Change in the Money