Question

The U.S. adopts an expansionary monetary policy. Interest rates fall​ (and are now lower than in other​ countries), and income rises. The value of the dollar is likely to ___________.

Answer 1

If the United States adopts an expansionary monetary policy, the value of the dollar is likely to decrease.

Step-by-step explanation:

Expansionary monetary policy is a type of monetary policy in which the monetary authority uses its tools to stimulate an economy. This policy is used to combat unemployment during a recession.

It lowers the interest rates or increases the total money supply in the economy which increases the aggregate demand which further boosts the growth measured by the gross domestic product (GDP). The expansionary monetary policy generally diminishes the value of currency, thus lowering the exchange rate.

Therefore, if the United States adopts an expansionary monetary policy, the value of the dollar is likely to decrease.