Suppose that the Fed decides to increase the growth rate of the money supply in the United States.What is most likely to happen to the U.S.trade deficit and to GDP?
A)The trade deficit will fall; GDP will fall.
B)The trade deficit will rise; GDP will rise.
C)The trade deficit will fall; GDP will rise.
D)The trade deficit will rise; GDP will fall.

Question

Quizplus · Accepted Answer

An increase in the money supply will lead to a depreciation of the dollar, making US exports cheaper and imports more expensive. This will lead to an increase in net exports (exports minus imports), which will increase GDP. The trade deficit will also increase, as imports will become more expensive.

Suppose That the Fed Decides to Increase the Growth Rate