Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 5

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime and that output is initially greater than the natural level of output. The economy will tend to move toward the natural level of output when which of the following occur?

• A) An increase in the foreign price level.
• B) A decrease in the domestic interest rate.
• C) A devaluation of the currency.
• D) An increase in the price level.
• E) An increase in money supply.