For this question,assume that exchange rates flexible and that the exchange rate expected to occur in one year is NOT constant.Suppose that individuals now expect that the domestic central bank will pursue expansionary monetary policy in one year.This expected future monetary expansion will cause which of the following to occur?
A)the current nominal exchange rate will decrease.
B)the current nominal exchange rate will increase.
C)the current nominal exchange rate will not change.
D)the effects on the current nominal exchange rate are ambiguous.

Question

Quizplus · Accepted Answer

The expectation of future expansionary monetary policy typically leads to a decrease in the current nominal exchange rate as investors anticipate lower future interest rates, leading to capital outflows and a depreciation of the currency.

For This Question,assume That Exchange Rates Flexible and That the Exchange