Suppose that the Fed pursues a contractionary monetary policy. Which of the following statements best explains the transmission mechanism in an open economy?
A. The increase in interest rates will cause capital outflow, increasing the value of the dollar and increasing net exports.
B. The increase in interest rates will cause capital inflow, increasing the value of the dollar and decreasing net exports.
C. The decrease in interest rates will cause capital outflow, lowering the value of the dollar and increasing net exports.
D. The decrease in interest rates will cause capital inflow, lowering the value of the dollar and decreasing net exports.