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Sagot :
Answer:
international value of the dollar increases
import increases
export decreases
Explanation:
Monetary policy are policies taken by the central bank of a country to shift aggregate demand.
There are two types of monetary policy :
Expansionary monetary policy : these are polices taken in order to increase money supply. When money supply increases, aggregate demand increases. reducing interest rate and open market purchase are ways of carrying out expansionary monetary policy
Contractionary monetary policy : these are policies taken to reduce money supply. When money supply decreases, aggregate demand falls. Increasing interest rate and open market sales are ways of carrying out contractionary monetary policy
Goals of monetary policy include
• financial market stability
• economic growth
• high employment
• price stability
When there is a contractionary monetary policy, interest rate increases. this leads to the appreciation of the US dollar against other currencies. thus, the exchange rate increases.
Due to the increased value of the dollar, the purchasing power of the dollar increases. As a result, import increases.
Due to increase in the value of the dollar, US goods become more expensive for non-US people. As a result, export decreases.
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