Under a flexible exchange system, an expansionary monetary policy would
A) appreciate a currency, as foreigners want to invest in a country with rising incomes.
B) depreciate a currency because of a fall in interest rates.
C) reduce exports.
D) have no effect on the exchange rate.

Question

Quizplus · Accepted Answer

An expansionary monetary policy typically involves a decrease in interest rates, which makes the domestic currency less attractive to foreign investors. As a result, demand for the currency decreases, causing its value to depreciate.

Under a Flexible Exchange System, an Expansionary Monetary Policy Would