If Expansionary Monetary Policy Reduces Real Interest Rates in the United

question 118

Multiple Choice

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

• A) Net foreign investment will decline, causing the dollar to depreciate and net exports to increase.
• B) Net foreign investment will decline, causing the dollar to appreciate and net exports to decrease.
• C) Net foreign investment will increase, causing the dollar to appreciate and net exports to decline.
• D) Net foreign investment will increase, causing the dollar to depreciate and net exports to increase.

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Definitions:

Compounded Quarterly

A method of calculating interest where the interest earned each quarter is added to the principal, thereby increasing the amount on which subsequent interest is calculated.

Interest Rate

The percentage of a loan amount that is applied as interest for the borrower, usually shown as an annual rate of the remaining loan balance.

Present Value

The present worth of a future amount of money or series of cash flows when a particular return rate is applied.

Semiannually

Occurring twice a year, typically every six months, often used in the context of interest or dividend payment schedules or reporting periods.