A decrease in the overnight loans rate leads to all of the following except
A)an increase in the quantity of money.
B)a fall in the exchange rate.
C)an increase in exports.
D)an increase in consumption expenditure.
E)an increase in imports.

Question

Quizplus · Accepted Answer

A decrease in the overnight loans rate means that it is cheaper for banks to borrow from each other, leading to an increase in the money supply as banks have more funds to lend out. This could lead to an increase in consumption expenditure (D) and exports (C) as businesses and consumers have more money to spend. However, a fall in the exchange rate (B) would make imports more expensive and lead to a decrease in imports, while an increase in the quantity of money (A) would also lead to a decrease in the exchange rate. Therefore, the only option that does not fit with a decrease in the overnight loans rate is an increase in imports (E).

A Decrease in the Overnight Loans Rate Leads to All