Sia
Question
Statistics
Posted 10 months ago
What happens to interest rates and exports in the short run in Atlantis if the central bank of Atlantis buys bonds?
Choose 1 answer:
(A) No change in interest rates, exports increase
(B) Interest rates increase; exports decrease
(C) Interest rates decrease; no change in exports
(D) Interest rates decrease; exports increase
(E) Interest rates increase; exports increase
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Understand the effect of a central bank buying bonds: When the central bank of Atlantis buys bonds, it injects money into the economy, which tends to lower interest rates
step 2
Analyze the impact on exports: Lower interest rates can lead to a depreciation of the local currency, making exports cheaper for foreign buyers and thus potentially increasing exports
step 3
Combine the effects: The combined effect of the central bank's action is a decrease in interest rates and an increase in exports in the short run
Answer
D
Key Concept
Monetary policy impact on interest rates and exports
Explanation
When a central bank buys bonds, it lowers interest rates, which can lead to a weaker currency and increase exports in the short run.
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