Suppose a Country Switches from a Flexible to a Fixed

question 57

Multiple Choice

Suppose a country switches from a flexible to a fixed exchange rate. Which of the following will occur as a result of this change?

• A) Both fiscal and monetary policy will become more effective in changing GDP.
• B) A given change in government spending will now have a greater effect on output.
• C) Both fiscal and monetary policy will become completely ineffective in changing GDP.
• D) Monetary policy will become a more effective tool for changing output.
• E) A given change in government spending will now have a smaller effect on output.

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Definitions:

Operating Expense

Costs associated with the day-to-day operations of a business, such as rent, utilities, and payroll, excluding cost of goods sold.

Purchases Discounts

An allowance given by the seller to the buyer for early payment or for buying in large quantities.

Net Purchases

The total cost of goods bought for resale, after subtracting returns, allowances, and discounts.