Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 31

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level. Which of the following will occur as a result of a devaluation?

• A) The real exchange rate will be permanently lower in the medium run.
• B) The real exchange rate will be permanently higher in the medium run.
• C) The effects of this devaluation on the real exchange rate will be ambiguous in the medium run.
• D) The nominal exchange rate will initially increase in the short run and then decrease in the medium run.
• E) The real exchange rate will be the same in the medium run.

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Definitions:

Big Picture

An inclusive overview or perspective that takes all relevant aspects into consideration, often used to emphasize understanding beyond immediate details.

Holding Environment

An environment that offers emotional support and understanding, enabling individuals to process challenging experiences or feelings securely.

Adaptive Leader Behavior

Behavior exhibited by leaders who adjust their strategies and approaches based on changing conditions and follower needs.

Demanding Problems

Issues or challenges that require significant effort, skill, or resources to resolve due to their complexity or urgency.