Which of the following is an immediate effect of an increase in money supply by the European Central Bank by 10 percent?
A)There will be an inflow of foreign capital in the countries belonging to the European Union.
B)The expected exchange rate value of the foreign currencies vis-à-vis the Euro will increase.
C)The interest rate in the EU countries will increase.
D)The product prices in the EU countries will decline drastically.

Question

Quizplus · Accepted Answer

An increase in the money supply by the European Central Bank typically leads to a depreciation of the Euro relative to other currencies, as more Euros are available compared to foreign currencies. This means the expected exchange rate value of foreign currencies vis-à-vis the Euro will increase, as it will take more Euros to buy the same amount of foreign currency.

Which of the Following Is an Immediate Effect of an Increase