I've just got an economics question if anyone has had previous knowledge in the field..

so the statement is "An increase in the money supply would cause an expansionary monetary shock""

So basically, it would cause excess supply, interest rates would decrease, and investment would increase, I understand that..

but then the question asks

"Are their any external effects? Why? What? Explain Fully."

I don't really understand that part

 

I've not studied econimocs but I would have thought that one of the areas that you should be looking at is foreign exchange. If you increase the monetary supply you will reduce the demand and thus the exchange rate will fall, also interest rate decreases will lead to a lower demand for the currency also reducing your exchange rate. This will then lead to reduced income from exports and make imports more expensive (in local currency terms) therefore adversley affecting your balance of payments.

I think

 

thanks TJ.. actually i got a helpful PM, but your advice was similar and also taken into consideration, closing thread now