Question

A country with a floating exchange rate faces a short-run recession and current account deficit. Policymakers want to use temporary expansionary monetary policy to increase both output and the current account balance. Will they be successful? Only with increasing output Only with increasing the current account balance No, not with either goal Yes, with both goals

Answer 1

Q-1 :: ANSWER :: (A) Only With increasing Output

=> Explanation ::

Expansionary monetary Policy Increase The Money Supply in the Economy So it Used The Lower Interest rate So Lower Interest Rate Depreciate The Currency. Depreciate In Currency Increase Import So It Did Not Reduce The Current Account but Increase It. But it Increase The Import So Output increase in The Country

Q-2 :: ANSWER :: (C) Decrease , Appreciate

=> Explanation ::

When taxes Rise People's Money Decrease so It Decrease The Aggregate Demand So it Leads to Decrease The Output In The Country So It Leads To Decrease The Money In Thr Market So People Demand More Money so Currency Value Increase So Exchange rate Depreciate.

Q-3 :: ANSWER :: (D) Expansionary Monetary Policy

=> Explanation ::

Expansionary Monetary Policy Decrease The Interest Rate So Money Supply increase In The Economy so increased Money supply Increase The Demand In The Market So It Leads to Increase The Short Run output In The Economy.

Q-4 :: ANSWER :: (A) RISE

=> Explanation ::

In The Standard Assumption, In The Short Run Currency Devaluation Cause Domestic Goods Cheaper For Foreigners So It Increase The Export Of The Country So increase In Export Leads To Increase In The Output Of The Country