How does contractionary monetary policy affect net exports in the short run?
A)Contractionary monetary policy increases exports and reduces imports.
B)Contractionary monetary policy reduces exports and increases imports.
C)Contractionary monetary policy increases exports and increases imports.
D)Contractionary monetary policy reduces exports and reduces imports.

Question

Quizplus · Accepted Answer

Contractionary monetary policy increases interest rates, making it more expensive for consumers and firms to borrow money. This results in a decrease in spending and economic activity. As a result, the demand for imports decreases while the demand for domestically produced goods increases. This leads to a decrease in net exports, as imports decrease more than exports.

How Does Contractionary Monetary Policy Affect Net Exports in the Short