A restrictive monetary policy in Canada is most likely to:
A)depreciate the international value of the dollar and increase Canadian net exports.
B)depreciate the international value of the dollar and decrease Canadian net exports.
C)appreciate the international value of the dollar and increase Canadian net exports.
D)appreciate the international value of the dollar and decrease Canadian net exports.

Question

Quizplus · Accepted Answer

When a country enacts a restrictive monetary policy, such as increasing interest rates or decreasing money supply, it becomes more attractive for investors to hold the currency. This increased demand for the currency causes it to appreciate in value, meaning that one Canadian dollar can buy more foreign currency. As a result, Canadian exports become more expensive for foreigners, leading to a decrease in net exports (exports minus imports).

A Restrictive Monetary Policy in Canada Is Most Likely To