Given a system of floating exchange rates,a contractionary monetary policy by the Federal Reserve will cause
A) the dollar to appreciate and will decrease U.S.net exports
B) the dollar to appreciate and will increase U.S.net exports
C) the dollar to depreciate and will increase U.S.net exports
D) the dollar to depreciate and will decrease U.S.net exports

Question

Quizplus · Accepted Answer

A contractionary monetary policy typically leads to higher interest rates, attracting foreign capital, which increases demand for the dollar, causing it to appreciate. An appreciated dollar makes U.S. goods more expensive abroad, decreasing net exports.

Given a System of Floating Exchange Rates,a Contractionary Monetary Policy