Start from an initial triple intersection of the IS, LM, and FE curves. Before anything else adjusts, a shift to an expansionary monetary policy results in a(n):
A)overall balance of payments surplus.
B)overall balance of payments deficit.
C)increase in domestic interest rates.
D)decrease in domestic output.

Question

Quizplus · Accepted Answer

An expansionary monetary policy typically leads to lower domestic interest rates as the supply of money increases. Lower interest rates make domestic assets less attractive to foreign investors, leading to capital outflows and a balance of payments deficit as the currency depreciates.

Start from an Initial Triple Intersection of the IS, LM