Suppose That a Country Has Floated Its Currency and the Central

question 282

Multiple Choice

Suppose that a country has floated its currency and the central bank sets a contractionary monetary policy. Which outcome is likely to occur?

• A) The country's currency will depreciate.
• B) Interest rates will rise, the currency will appreciate, and any inflationary gap will shrink.
• C) Interest rates will fall, which will reduce aggregate demand.
• D) Net exports will be larger.

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Definitions:

Factory Depreciation

The systematic reduction in the recorded cost of fixed assets (such as manufacturing equipment) to account for wear and tear or obsolescence over time.

Total Manufacturing Costs

The aggregate cost of direct material, direct labor, and manufacturing overhead incurred in producing goods.

Operating Expenses

Operating expenses consist of the costs related to a company's primary operational activities, excluding costs associated with manufacturing or production.

Factory Utilities

Expenses related to services like electricity, water, and gas utilized in the manufacturing process.