Contractionary monetary policy in a flexible exchange rate regime will cause
A)a shift of the IP curve.
B)a depreciation of the domestic currency.
C)an increase in E.
D)no change in E.

Question

Quizplus · Accepted Answer

Contractionary monetary policy typically leads to higher interest rates, which can attract foreign capital, causing the domestic currency to appreciate, thus increasing E (the exchange rate).

Contractionary Monetary Policy in a Flexible Exchange Rate Regime Will