Under conditions of imperfect capital mobility, a small open economy conducts monetary expansion. Which of the following best describes the expected short-term effects of this policy?

 

A) An increase in domestic output and a depreciation of the domestic currency.

B) An increase in private investment due to a decrease in the interest rate.

C) A decrease in domestic output and an appreciation of the domestic currency.

D) A decrease in private investment due to an increase in the interest rate.

E) A decrease in the trade deficit due to the appreciation of the domestic currency.