If,other things being equal,a country with a flexible exchange rate increases its money supply,this will lead to _____ in the value of the country's currency,which will tend to _____ national income.
A) a depreciation; increase
B) a depreciation; decrease
C) an appreciation; increase
D) an appreciation; decrease

Question

Quizplus · Accepted Answer

When a country increases its money supply, it causes an increase in inflation due to the surplus of currency. This reduces the value of the country's currency, causing it to depreciate. A depreciated currency makes exports cheaper and imports more expensive, resulting in an increase in the demand for exports and a decrease in the demand for imports. Hence, this will tend to increase national income.

If,other Things Being Equal,a Country with a Flexible Exchange Rate