Sia
Question
Statistics
Posted 7 months ago
The central bank of Johnsrudia engaged in contractionary monetary policy that lead to an increase in interest rates.
What will happen to the value of Johnsrudia's currency, its imports, and its exports?
Choose 1 answer:
A Currency appreciates; imports decrease; exports increase
(B) Currency depreciates; imports decrease; exports decrease
(C) Currency appreciates; imports increase; exports decrease
(D) Currency depreciates; imports increase; exports increase
(ㄷ) Currency appreciates; imports increase; exports increase
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
Understand the effects of contractionary monetary policy: Contractionary monetary policy, which involves increasing interest rates, generally leads to a higher value of the country's currency
step 2
Analyze the impact on imports and exports: A stronger currency makes imports cheaper and exports more expensive for foreign buyers, which tends to decrease exports and increase imports
step 3
Apply the effects to the given options: Based on steps 1 and 2, the correct option would be the one that states the currency appreciates, imports increase, and exports decrease
Answer
C
Key Concept
Contractionary monetary policy and currency value
Explanation
Contractionary monetary policy typically leads to an appreciation of the currency, making imports cheaper and exports more expensive, thus increasing imports and decreasing exports.
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