In an open economy, a loosening of monetary policy, in the short run, will cause: consumption,...
In an open economy, a loosening of monetary policy, in the short run, will cause:
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consumption, investment, and net exports to rise. |
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consumption and investment to rise, but net exports will fall. |
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consumption to fall, but investment and net exports will rise. |
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consumption, investment, and net exports to fall. |
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consumption to rise, but investment and net exports will fall. |
Homework Answers
Answer to the question is the first option. That Consumption, investment and net export will rise.
Loosening of monetary policy implies that increase of money supply.
Firstly As money supply increases the fed encourage the consumer to consume more.
As a result of increase in money supply interest rate falls. As interest rate falls investment increases.
Lastly the decline in rate of interest depreciates the exchange rate and hence net export rises.
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