Question

A country operates under a flexible exchange rate system. When the central bank lowers the interest rate during a recession, investment spending will decrease, the exchange rate value of the currency will_____, and net exports will_____.

Answer 1

decrease; increase

Step-by-step explanation:

This is the case because as the central bank of that country lowers interest rate, with the goal recovering from the recession, but because the interest rate is low, the value of the country's currency (exchange rate) will decrease as a result of low investment spending.

When this occurs there will be an increase in net exports as a result of foreign demand because the prices of the country's export is now lower.