Financial Sector

An initial depreciation followed by appreciation as market adjusts slowly to rate changes.

No change in the exchange rate since interest rates do not impact capital flows directly.

Depreciation of its currency as investors seek lower-yielding investments elsewhere.

Appreciation of its currency due to increased foreign investment inflows.

Retain purchasing power over time.

Only be held by banks or governments.

Fluctuate greatly in worth day-to-day.

Be exchanged directly for any good or service.

Reducing taxes

Expanding the money supply

Increasing interest rates

Increasing government spending

Not affect exports as currency value does not influence international trade.

Decrease exports due to higher prices for foreign buyers.

Decrease imports because domestic goods become relatively cheaper.

Increase exports by making them more competitive abroad.

Trade restrictions

Government subsidies

Expansionary monetary policy

Progressive income tax

Barter system where goods are exchanged directly without the use of money

Currency issued by the government that is not backed by a physical commodity

Currency backed by gold or other precious metals

Digital forms of payment such as cryptocurrencies

They might increase savings dramatically, expecting an imminent sharp increase in interest rates.

They would engage in brisk expenditures, assuming that prices will rise quickly and dramatically.

They might enter into longer-term fixed-rate loans, anticipating low and stable interest rates.

They could cut back on durable goods purchases, expecting prices to fall significantly.

A perpetual increase in net exports due to competitive pricing.

Increased foreign ownership of domestic assets.

Improvement in the balance of payments through automatic stabilization.

Strengthening of the domestic currency leading to cheaper imports.

Banks raise interest rates on loans

The government increases taxes

Consumer spending decreases

The central bank purchases government bonds in the open market

The ratio of the money supply to the total bank reserves

The ratio of the monetary base to the government spending

The ratio of the change in the money supply to the change in the monetary base

The ratio of the money supply to the gross domestic product