In the monetary approach to the exchange rate, a decrease in income in country I Will, other things equal, lead to an __________ money in country I and therefore to __________ of country I's currency against other currencies.
A) excess supply of; a depreciation
B) excess supply of; an appreciation
C) excess demand for; a depreciation
D) excess demand for; an appreciation

Question

Quizplus · Accepted Answer

A decrease in income in country I will lead to a decrease in the demand for money in country I, which will lead to an excess supply of money in country I. This will lead to a depreciation of country I's currency against other currencies.

In the Monetary Approach to the Exchange Rate, a Decrease