Assume a contractionary monetary policy causes real interest rates in the US to increase relative to Japan. In the short run, the value of the US dollar, the value of the Japanese yen, and the US balance of trade will most likely change in which of the following ways?
a. appreciate; appreciate; move toward deficit
b. appreciate; depreciate; move toward deficit
c. appreciate; depreciate; move toward surplus
d. depreciate; depreciate; move toward surplus
e. no change; appreciate; move toward deficit
Answer: b. appreciate; depreciate; move toward deficit
Economics
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