Under a floating exchange rate regime, an expansion in the money supply will:
A)induce financial capital to leave the country.
B)attract financial capital into the country.
C)have no effect on financial account balance.
D)cause a surplus in the official settlement balance.

Question

Quizplus · Accepted Answer

An expansion in the money supply typically leads to lower interest rates, making domestic assets less attractive to foreign investors. This tends to induce financial capital to leave the country as investors seek higher returns elsewhere.

Under a Floating Exchange Rate Regime, an Expansion in the Money