In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Berna Chairman of the Federal Reserve stated that "policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant."
If all the banks enacted the policy simultaneously, which of the following expenditure components increase in the United States?
i. exports
ii. consumption
iii. investment
A) ii only.
B) i, ii and iii.
C) ii and iii only.
D) i and iii only.

Question

Quizplus · Accepted Answer

A decrease in interest rates increases the consumption and investment levels. However, it will also lead to a decrease in the value of the dollar relative to other currencies, making exports more competitive. Therefore, ii and iii will increase, but there is no indication that exports will increase, so i is not included.

In October 2008, Central Banks Around the World Coordinated a Decrease