Considering only its direct effect on income, the effect of monetary policy is that:
A)both expansionary and contractionary policies tend to increase the trade deficit.
B)both expansionary and contractionary policies tend to decrease the trade deficit.
C)expansionary policy tends to increase the trade deficit and contractionary policy tends to decrease it.
D)expansionary policy tends to decrease the trade deficit and contractionary policy tends to increase it.

Question

Quizplus · Accepted Answer

Expansionary monetary policy typically leads to lower interest rates, which can increase domestic consumption, including of imported goods, thus potentially increasing the trade deficit. Contractionary policy, on the other hand, tends to raise interest rates, which can decrease consumption and imports, potentially decreasing the trade deficit.

Considering Only Its Direct Effect on Income, the Effect of Monetary