Suppose monetary policy results in the exchange rate falling. As a result,
A)exports increase and imports increase.
B)net exports increase.
C)net exports decrease.
D)exports do not change because they are autonomous and imports decrease.
E)exports decrease and imports decrease.

Question

Quizplus · Accepted Answer

When the exchange rate falls, domestic goods become cheaper for foreign buyers, leading to an increase in exports. Simultaneously, foreign goods become more expensive for domestic consumers, leading to a decrease in imports. This results in an increase in net exports.

Suppose Monetary Policy Results in the Exchange Rate Falling