ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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appreciation of domestic currency
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decrease in exports
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increase in imports
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depreciation of the domestic currency
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Detailed explanation-1: -Monetary policy involves the management of the money supply and interest rates by central banks. To stimulate a faltering economy, the central bank will cut interest rates, making it less expensive to borrow while increasing the money supply.
Detailed explanation-2: -Expansionary monetary policy: This type of monetary policy can increase the economy’s money supply through decreasing interest rates, lowering reserve requirements for banks, and the purchase of government securities by central banks.
Detailed explanation-3: -Expansionary monetary policy (↑MS) causes an increase in GNP and a depreciation of the domestic currency in a floating exchange rate system in the short run. Contractionary monetary policy (↓MS) causes a decrease in GNP and an appreciation of the domestic currency in a floating exchange rate system in the short run.