Question

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be lower interest rates followed by dollar a. appreciation, and a decrease in net exports.. b. appreciation, and an increase in net exports. c. depreciation, and a decrease in net exports. d. depreciation, and an increase in net exports

Answer 1

Option D. Depreciation, and an increase in net exports

Step-by-step explanation:

When the interest rates are lowered the demand for the home currency decreases which results in decrease in foreign investment and as a result the value of the home currency falls. The reduction in interest rate will increase the consumer spending because people and companies will make more investments to take advantage of the lower interest rate.

The depreciation in currency value will also make the home country product more cheaper and hence the net exports will grow during this phase.