If exchange rates are perfectly flexible,an expansionary U.S.monetary policy will

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Quizplus · Accepted Answer

If exchange rates are perfectly flexible, an expansionary U.S. monetary policy will increase the supply of dollars in the foreign exchange market, which, in turn, will reduce the demand for dollars and reduce the value of the dollar. This will shift the LM curve to the right, leading to an increase in output, employment, and prices in the short run.

If Exchange Rates Are Perfectly Flexible,an Expansionary U