Asked by Hloni Nkolanyane on Jun 11, 2024
Verified
Statement I: If the Fed pursued a tight money policy,investors all over the world would be attracted to the higher interest rates they could earn by purchasing U.S.bonds,corporate bonds,and other assets.
Statement II: Tight money tends to lower our net exports.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.
Tight Money Policy
A monetary policy strategy used by central banks to reduce the money supply and increase interest rates to control inflation.
Net Exports
The difference between a country's total value of exports and total value of imports. Positive net exports indicate a trade surplus, while negative net exports indicate a trade deficit.
Interest Rates
The cost of borrowing money, typically expressed as a percentage of the total amount loaned.
- Comprehend how monetary policy impacts economic circumstances.
Verified Answer
QN
Quân Nguy?nJun 16, 2024
Final Answer :
C
Explanation :
Statement I is true because a tight money policy typically involves raising interest rates to control inflation, which makes U.S. financial assets more attractive to foreign investors due to higher returns. Statement II is also true because a tight money policy, by raising interest rates, appreciates the domestic currency, making exports more expensive and imports cheaper, thus reducing net exports.
Learning Objectives
- Comprehend how monetary policy impacts economic circumstances.