AP Macroeconomics Question 86: Answer and Explanation

Test Information

Use your browser's back button to return to your test results.

Question: 86

12. A use of easy money (expansionary) policy by the Fed could result in which of the following?

  • A. an increase in net exports
  • B. a decrease in net exports
  • C. an increase in the real interest rate
  • D. an increase in the nominal interest rate
  • E. crowded out investment

Correct Answer: B


B Expansionary monetary policy will decrease interest rates, which will induce a capital inflow and increase investment and consumption. As a result, there will be increased inflation, which will cause the relative price to be high for foreign nations, which will decrease net exports, so the answer is (B).