Question

Imagine that there are two economies in the​ world: Bostonia and New Yorkland.​ Bostonia's currency is the sock and New​ Yorkland's is the yank. Despite the​ long-standing rivalry between their​ citizens, Bostonia and New Yorkland are trading partners. The Central Bank of New Yorkland decides to conduct expansionary monetary policy.

What would be the​ short-run effect, if​ any, on the​ yank/sock nominal exchange​ rate?

A. This policy will decrease the interest rate in New​ Yorkland, making its assets less attractive to​ Bostonia's investors. This will cause an increase in the supply of ​yanks, resulting in a depreciation of the yank relative to the sock.

B. This policy will decrease the interest rate in New​ Yorkland, making its assets less attractive to​ Bostonia's investors. This will cause an increase in the supply of ​yanks, resulting in a depreciation of the sock relative to the yank.

C. This policy will increase the interest rate in New​ Yorkland, making its assets more attractive to​ Bostonia's investors. This will cause an increase in the supply of ​yanks, resulting in a depreciation of the yank relative to the sock.

D. This expansionary monetary policy implemented in New Yorkland alone will not impact the​ yank/sock nominal exchange rate.

What would be the impact of the Central Bank of New​ Yorkland's expansionary monetary policy on New​ Yorkland's net ​ exports?

A. New​ Yorkland's net exports will not change. B. New​ Yorkland's net exports will increase. C. New​ Yorkland's net exports will decrease.

What would be the impact of the Central Bank of New​ Yorkland's expansionary monetary policy on​ Bostonia's net ​ exports? A. ​Bostonia's net exports will increase. B. ​Bostonia's net exports will not change. C. ​Bostonia's net exports will decrease.

Answer 1

1. (A) This policy will decrease the interest rate in New​ York land, making its assets less attractive to​ Bostonians' investors. This will cause an increase in the supply of ​yanks, resulting in a depreciation of the yank relative to the sock.

reason expansionary monetary policy will result in decrease in interest rate that makes the assets less attractive to Bostonian investors. it will cause decrease in demand for Yank and increase in supply will result in a depreciation of the yank relative to the sock.

2. B. New​ Yorkland's net exports will increase.

reason as depreciation leads to cheaper product or services for other country so increase of export in the Yorkland.

3.(C) Bostonia's net exports will decrease.

Reason Bostonia will increase its import but less in export. so net export will reduce.