The correct option for
Answer to Problem 5MCQ
Option d is correct.
Explanation of Solution
Explanation for the correct option:
d.
By lowering the interest rate, the money outflow will increase as investors would no longer be interested in investing in domestic currency. This will result in the
Explanation for incorrect options:
a.
Domestic currency by reducing the interest rate will depreciate instead of appreciating. Therefore, option a is the incorrect answer.
b.
Due to the lower value of the currency exports will increase. Therefore, option b is incorrect.
c.
Imports will reduce as domestic currency becomes cheaper resulting in cheaper goods and services than abroad. Therefore, option c is incorrect.
e.
Inflation cannot be prevented by lowering the interest rate. Therefore, option e is incorrect.
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
Chapter 43 Solutions
Krugman's Economics For The Ap® Course
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