In a Freely Floating Exchange Rate System, Exchange Rates Tend

question 44

Multiple Choice

In a freely floating exchange rate system, exchange rates tend to overshoot after a monetary contraction, since

• A)interest rates adjust immediately but exchange rates and prices adjust only gradually
• B)prices and interest rates adjust immediately but exchange rates adjust only gradually
• C)exchange rates adjust immediately but prices adjust only gradually
• D)the gain in competitiveness causes a temporary increase in output
• E)none of the above

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