What Are the Results of a Contractionary Monetary Policy in an Open

question 26

Multiple Choice

What are the results of a contractionary monetary policy in an open economy with floating exchange rates and internationally mobile capital?

• A)The dollar appreciates, which leads to an increase in exports and a decrease in imports.The country therefore winds up with a deficit in capital and a surplus in its balance of trade.
• B)The dollar appreciates, which attracts foreign capital.Also, imports rise and exports decline.The country therefore winds up with a surplus in capital and an increase in its trade deficit.
• C)The dollar depreciates, which attracts foreign capital.Also, exports rise and imports decline.The country therefore winds up with a deficit in capital and a surplus in its balance of trade.
• D)The dollar depreciates, which leads to a larger real GDP and a larger trade surplus.

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