Question

If the government follows an easy monetary policy and the exchange rate is flexible, which of the following will likely be the result? A falling real interest rate but higher net exports. A strong currency, which will help stimulate net exports. Increases in the demand for the currency and decreases in the supply of the currency. A higher real interest rate but lower net exports.

Answer 1

A falling real interest rate but higher net exports.

Step-by-step explanation:

An easy monetary policy is a policy in which the interest rates decrease in order to increase the money supply and when interest rates are lower, there is an increase in spending and on net exports. Also, a flexible exchange rate is when the system allows the events on the market to determine the exchange rate.

According to this, the answer is that if the government follows an easy monetary policy and the exchange rate is flexible, the result will likely be a falling real interest rate but higher net exports.