What effect does expansionary monetary policy have on the interest rate and the (flexible)exchange rate?
A)The interest rate will fall,and exchange rate will rise.
B)The interest rate will fall,and exchange rate will fall.
C)The interest rate will rise,and exchange rate will rise.
D)The interest rate will rise,and exchange rate will fall.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves increasing the money supply in the economy, leading to a decrease in interest rates due to increased borrowing and spending. A decrease in interest rates lowers the demand for the domestic currency, leading to a depreciation in its value and a fall in the flexible exchange rate. Thus, the interest rate will fall, and the exchange rate will fall as a result of expansionary monetary policy.

What Effect Does Expansionary Monetary Policy Have on the Interest