Pregunta
If the US govermment uses an expansionary monetary policy to reduce interest rates, then it will:
(A) lead to hisher imports and lower exports.
(B) cause the evchange rate for US currency to depreciate
© Iower levels of consumption and investment.
(D) cause the evchange rate for US currency to appreciate.
Additional content
(A) lead to hisher imports and lower exports.
(B) cause the evchange rate for US currency to depreciate
© Iower levels of consumption and investment.
(D) cause the evchange rate for US currency to appreciate.
Additional content
Ask by Osborne Boyd. in the United States
Mar 23,2025
Solución de inteligencia artificial de Upstudy
Respuesta verificada por el tutor
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An expansionary monetary policy lowers US interest rates, making the currency less attractive to investors, which causes the US currency to depreciate.
Solución
- An expansionary monetary policy reduces interest rates in the economy.
- Lower domestic interest rates lead to less attractive returns for investors holding that country’s currency.
- As investors seek higher returns elsewhere, the demand for the domestic currency decreases.
- A decrease in demand for the currency typically causes its value to decline, or in other words, to depreciate.
Thus, the correct answer is:
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Simplifique esta solución Mind Expander
When the US government employs expansionary monetary policy, it actively aims to increase the money supply, which often leads to lower interest rates. This typically makes borrowing cheaper, encouraging businesses and consumers to spend more, ultimately stimulating the economy. However, as lower interest rates usually lead to increased expenditure, it can also cause the US dollar to weaken against other currencies, making imports more expensive and exports cheaper for foreign buyers.
The interplay between monetary policy and currency value is fascinating! Historically, after significant economic downturns, the US has frequently used expansionary monetary policies, like lowering interest rates, to jumpstart the economy. For instance, following the 2008 financial crisis, the Federal Reserve slashed rates to near-zero and engaged in quantitative easing, which helped recover from the recession but also complicated international trade dynamics.
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