Due to macroeconomics interdependence between large countries, the effect of a permanent monetary policy expansion by Home is as follows: Home output
A) rises, Home's currency depreciates, and Foreign output may rise or fall.
B) falls, Home's currency depreciates, and Foreign output may rise or fall.
C) rises, Home's currency appreciates, and Foreign output may rise or fall.
D) rises, Home's currency depreciates, and Foreign output rises.
E) falls, Home's currency appreciates, and Foreign output may rise or fall.

Question

Quizplus · Accepted Answer

A permanent monetary policy expansion typically leads to an increase in Home output due to lower interest rates stimulating investment and consumption. Home's currency depreciates because the lower interest rates reduce foreign investment in Home's assets, decreasing the demand for Home's currency. The effect on Foreign output can vary depending on the structure of the economies and the nature of trade and financial linkages between the countries.

Due to Macroeconomics Interdependence Between Large Countries, the Effect of a Permanent