Pregunta
Question 40
1 Point
If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it wilt:
(A) lead to higher imports and lower exports
(B) cause the exchange tate for US currency to depreciare
© lower lieveis of consumption and investment.
(D) cause the exchange rate for US. currency to appreciate
1 Point
(A) lead to higher imports and lower exports
(B) cause the exchange tate for US currency to depreciare
© lower lieveis of consumption and investment.
(D) cause the exchange rate for US. currency to appreciate
Ask by Schwartz Chan. in the United States
Mar 30,2025
Solución de inteligencia artificial de Upstudy
Respuesta verificada por el tutor
Responder
The U.S. dollar will depreciate.
Explanation:
When the U.S. government uses an expansionary monetary policy to lower interest rates, it makes U.S. investments less attractive to foreign investors. This reduces the demand for the U.S. dollar, causing it to depreciate in value compared to other currencies.
Solución
Step 1: Identify the Policy and Its Effects
An expansionary monetary policy involves increasing the money supply, which in turn lowers the interest rates. This can be represented by:
Step 2: Impact on Foreign Exchange Markets
Lower interest rates in the U.S. reduce the returns on investments denominated in U.S. dollars. As a result, foreign and domestic investors may seek higher returns elsewhere, leading to a lower demand for U.S. currency. This decreased demand can cause the U.S. dollar to depreciate. Mathematically, if we let
Step 3: Evaluate the Answer Choices
- (A) Lead to higher imports and lower exports: A depreciated currency makes imports more expensive and exports cheaper. Thus, this option is incorrect.
- (B) Cause the exchange rate for U.S. currency to depreciate: This option correctly reflects the effect discussed.
- © Lower levels of consumption and investment: Expansionary monetary policy typically increases both consumption and investment, so this is incorrect.
- (D) Cause the exchange rate for U.S. currency to appreciate: The opposite is true; the U.S. currency depreciates.
Conclusion
The correct answer is:
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Simplifique esta solución The Deep Dive
When the U.S. government implements an expansionary monetary policy, it typically injects more money into the economy, which leads to lower interest rates. This makes borrowing cheaper, encouraging both consumers and businesses to spend more. As a result, the increased demand can lead to a depreciation of the U.S. dollar because lower interest rates can cause foreign investors to seek higher returns elsewhere.
Moreover, a depreciation of the U.S. dollar can make American exports cheaper for foreign buyers, bolstering export activity, while imports become more expensive. It’s a classic case of supply and demand dynamics at work! So, in this scenario, option (B) “cause the exchange rate for U.S. currency to depreciate” is indeed the correct choice.
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