Advocates of Flexible Exchange Rates Claim That Under Flexible Exchange

question 41

Multiple Choice

Advocates of flexible exchange rates claim that under flexible exchange rates, the central bank of

• A) an overheated economy could cool down activity by increasing the money supply without worrying that undesired reserve inflow would undermine its stabilization effort.
• B) a cooled economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort.
• C) an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort.
• D) an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve outflow would undermine its stabilization effort.
• E) an overheated economy could cool down activity by decreasing employment and increasing output without worrying that this would undermine its stabilization effort.