Assume That Exchange Rates Are Flexible and That the Future

question 44

Multiple Choice

Assume that exchange rates are flexible and that the future expected exchange rate in one year is not constant. Suppose that individuals now expect that the domestic central bank will pursue contractionary monetary policy in one year. This expected future monetary contraction will cause which of the following to occur?

• A) The current nominal exchange rate will decrease.
• B) The current nominal exchange rate will increase.
• C) The current nominal exchange rate will not change.
• D) The effects on the current nominal exchange rate are ambiguous.
• E) The effects on the current nominal exchange rate depend on future current account balances.

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Definitions:

Erogenous Zones

Erogenous zones are areas of the body that elicit sexual arousal when touched or stimulated.

Sigmund Freud

An Austrian neurologist who founded the discipline of psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Superego

A part of the human psyche in psychoanalytic theory that represents internalized ideals and provides standards for judgment.

Id

Within the framework of psychoanalytic theory, it refers to the segment of the mind responsible for generating innate impulses and urging the instant gratification of basic desires.