Question 40
1 Point

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it wilt:
(A) lead to higher imports and lower exports
(B) cause the exchange tate for US currency to depreciare
© lower lieveis of consumption and investment.
(D) cause the exchange rate for US. currency to appreciate

When the U.S. government implements an expansionary monetary policy, it typically injects more money into the economy, which leads to lower interest rates. This makes borrowing cheaper, encouraging both consumers and businesses to spend more. As a result, the increased demand can lead to a depreciation of the U.S. dollar because lower interest rates can cause foreign investors to seek higher returns elsewhere.

Moreover, a depreciation of the U.S. dollar can make American exports cheaper for foreign buyers, bolstering export activity, while imports become more expensive. It’s a classic case of supply and demand dynamics at work! So, in this scenario, option (B) “cause the exchange rate for U.S. currency to depreciate” is indeed the correct choice.