Question

Consider a country that is operating under a system of flexible exchange rates. If the central bank in this country imposes an expansionary monetary policy, it would be likely to experience:_________
I. a depreciation of its currency;
II. short-term capital outflows;
III. an appreciation of its currency.

Answer 1

Answer:

i a depreciation of its currency;

Explanation:

A flexible exchange rate is when exchange rate is determined by the forces of demand and supply.

an expansionary monetary policy is a policy where the monetary authorities increase the money supply in the economy.

If exchange rate is flexible and an expansionary monetary policy is carried out, the supply of money would exceed its demand.  as a result, the value of money would fall. this is known as depreciation