Assume That the Economy Is Operating in a Fixed Exchange

question 13

Multiple Choice

Assume that the economy is operating in a fixed exchange rate regime and that perfect capital mobility exists. Given this information, which of the following will occur?

• A) The central bank cannot use monetary policy independently to affect domestic output.
• B) Contractionary fiscal policy will require the central bank to decrease the money supply.
• C) The domestic and foreign interest rates must be equal.
• D) All of the above.
• E) None of the above.