Join IDNLearn.com and start exploring the answers to your most pressing questions. Our Q&A platform is designed to provide quick and accurate answers to any questions you may have.

In response to the 2008 recession, the United States Federal Reserve enacted Quantitative Easing 1 and 2. The main purpose of these two rounds of quantitative easing was to increase the U.S. money supply. Suppose quantitative easing succeeded in increasing the U.S. monetary supply. How, if at all, should quantitative easing change the following variables? Use the neoclassical aggregate demandâ€"aggregate supply model.
A. U.S. interest rates
B. U.S. exchange rate, in units of foreign currency per U.S. dollar
C. U.S. exports
D. U.S. imports
E. U.S. price level
F. U.S. nominal output


Sagot :

Answer:

A. U.S. interest rates - Quantitative easing lowers interest rates because it increases the money supply, making investment cheaper because more loanable funds are available.

B. U.S. exchange rate, in units of foreign currency per U.S. dollar - quantitative easing would lower the value of the U.S. dollar in terms of foreign currency like Euro or Sterling Pound, due to a higher amount of U.S. dollars units, causing the currency to depreciate against the other currencies.

C. U.S. exports - U.S. exports under quantitative easing would rise due to the lower value of the U.S. dollar. In other words, American goods become cheaper to foreign consumers.

D. U.S. imports - U.S. imports under quantitative easing would decrease because foreign currency becomes more expensive. In other worlds, foreign goods become more costly to American consumers.

E. U.S. price level - Under a quantity theory of money view, more money supply means higher price level or inflation. However, if the economy is in recession, and the quantitative easing is backed by debt securities, the price level is not likely to rise by a lot. This is actually what happened in the U.S. during the recession: the money supply grew by a wide margin, but the price level did not rise nearly as much.

F. U.S. nominal output - Nominal output under quantitative easing will rise because more money in the economy will lower interest rates, boost investment, and raise production in the process.