Assume the asset market is always in equilibrium. Therefore a fall in Y would result in
A) higher inflation abroad.
B) a decreased demand for domestic products.
C) a contraction of the money supply.
D) a depreciation of the home currency.
E) an appreciation of the home currency.

Question

Quizplus · Accepted Answer

A fall in Y (national income) would lead to a decrease in demand for money, which, under the assumption of asset market equilibrium, could lead to a depreciation of the home currency as investors seek higher returns abroad.

Assume the Asset Market Is Always in Equilibrium