Unexpected increase in the growth rate of the money supply would:

CFA Level II
#1

An unexpected increase in the growth rate of the money supply would: A) cause real interest rates to fall, causing a depreciation of the country’s currency. B) cause real interest rates to rise, causing an appreciation of the country’s currency. C) have no effect on exchange rates in the short run

#2

these questions have me scared shitless i want to say “A” because it’s the obvious answer but there must be a trick

#3

expansionary monetary policy - currency depreciation – interest rate effect. so I too go with A.

#4

Real interest rates will initially fall, and currency will initially depreciate. However, in the long run the expected inflation will eventually be factored into wage and price setters’ decisions, pushing the real interest rate back up to its natural level, leaving long-term nominal interest rates higher than before.

#5

I will join the A train…increase in money decreases demand for the currency, depreciating it.

#6

Growth in Money Supply, causes excell Supply of money in the FX Market, driving the price of money (aka Interest rates down), with the rippled effect of lower demand for the domestic currency due to unfavourable interest rate conditions. Short Ans - Lock A for me please.

#7

Yup, the answer is A Unanticipated shifts to an expansionary monetary policy would lead to a more rapid economic growth, an unexpected increase in inflation, and lower real interest rates. The more rapid economic growth would lead to an increase in demand for imports. The higher rate of inflation makes domestic goods more expensive, reducing exports. Lower real interest rates reduce investment by foreigners. These factors increase the demand for foreign currencies and reduce the demand for the country’s domestic currency, causing it to depreciate

#8

Good lord, my thinking was way off, but I arrived at the correct answer…so I kind of got this right.