Considering only its direct effect on income, an expansionary monetary policy tends to:
A)increase a trade deficit and decrease the exchange rate.
B)increase a trade deficit and increase the exchange rate.
C)decrease a trade deficit and decrease the exchange rate.
D)decrease a trade deficit and increase the exchange rate.

Question

Quizplus · Accepted Answer

An expansionary monetary policy typically leads to lower interest rates, which can decrease the value of a country's currency (decrease the exchange rate). This makes imports more expensive and exports cheaper to foreign buyers, potentially increasing the trade deficit as the country imports more and exports grow due to increased competitiveness abroad.

Considering Only Its Direct Effect on Income, an Expansionary Monetary