An expansionary monetary policy affects a country's foreign exchange rate by making the country's currency:
A) appreciate.
B) depreciate.
C) lose purchasing power due to deflation.
D) gain purchasing power due to deflation.

Question

Quizplus · Accepted Answer

An expansionary monetary policy typically involves lowering interest rates or increasing the money supply, which can lead to a depreciation of the country's currency. This is because lower interest rates make investments in that currency less attractive, reducing demand for the currency on foreign exchange markets.

An Expansionary Monetary Policy Affects a Country's Foreign Exchange Rate