The expected effects of monetary expansion are
A)lower real interest rates.
B)exchange rate depreciation.
C)higher inflation.
D)All of these responses are correct.

Question

Quizplus · Accepted Answer

When the central bank engages in monetary expansion, it increases the money supply, which leads to a decrease in real interest rates as demand for credit goes up. This also results in a depreciation of the exchange rate as the increased supply of domestic currency decreases its value relative to other currencies. Finally, monetary expansion can lead to higher inflation as the increased money supply chases the same amount of goods and services, leading to a rise in prices. Therefore, all of these responses are correct.

The Expected Effects of Monetary Expansion Are