An increase in the money supply in a flexible exchange rate regime will cause: Select one:...
An increase in the money supply in a flexible exchange rate regime will cause:
Select one:
a. an increase in the exchange rate.
b. no change in the exchange rate.
c. a depreciation of the domestic currency.
d. a shift of the IP curve.
Homework Answers
Option C.
- An increase in the money supply in a flexible exchange rate regime will cause a depreciation of the domestic currency.
- When the exchange rates are flexible in an open economy, an expansionary monetary policy would lead to a fall in the the interest rates and also raise the rate of inflation
- A higher rate of inflation will gradually lead to a depreciation of the domestic currency.
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