Question

Contractionary monetary policy would ______ interest rates and _______ the U.S. dollar, leading to a(an) ________ in U.S. net exports

		increase, appreciate, decrease
		decrease, appreciate, increase
		increase, depreciate, decrease
		decrease, depreciate, increase

Answer 1

When Fed use contractionary monetary policy, then money supply will decrease and money supply curve shifts leftward. Hence interest rate increases. Since higher interest rate attracts more foreign capital, so there will be inflow of capital, so US dollar will appreciates. Hence US goods and services become expensive relative to world goods. Hence export decreases and import increases. Hence net export decreases.

Hence it can be said that Economics Contractionary monetary policy would increase interest rates and appreciate the U.S. dollar, leading to a(an) decrease in U.S. net exports.

Hence option first is the correct answer.