Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 27

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime. Now suppose that a fiscal contraction is implemented. Such a policy will tend to cause which of the following to occur?

• A) A decrease in the exchange rate.
• B) A decrease in Y.
• C) A decrease in the domestic interest rate.
• D) An increase in the money supply.
• E) An increase in the price level.

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Definitions:

Discharged From Liability

The release of a debtor from the obligation to repay a debt, usually following a legal process such as bankruptcy proceedings.

Dishonor

Failure to fulfill an obligation, especially the non-payment of a check or negotiable instrument when it is presented for payment.

Warranties

Legally binding promises made by a manufacturer or seller that a product or service meets certain quality and reliability standards or that certain repair or replacement conditions will be met.

Unaccepted Draft

A written order to pay a specified amount that has not been agreed to or signed by the party expected to pay.