Which of the Following Statements Is True

question 55

Multiple Choice

Which of the following statements is true?

• A)Monetary policy is a powerful economic tool for a country with fixed exchange rates and high capital mobility.
• B)Under floating exchange rates, external capital-flow shocks can have effects on internal balance by altering the exchange rate and the country's international competitiveness.
• C)Fiscal policy for a country with floating exchange rates is more powerful with a high degree of capital mobility than with a low degree of capital mobility.
• D)An expansionary monetary policy tends to increase the exchange rate value of the domestic currency in the short run.

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Definitions:

Flexible Exchange Rates

Exchange rates determined by the foreign exchange market, allowing the value of a currency to fluctuate according to supply and demand.

Bretton Woods Agreement

A 1944 agreement that established a new international monetary system, creating institutions like the International Monetary Fund (IMF) and the World Bank to ensure financial stability and promote economic cooperation.

Gold Standard

An economic setup where the worth of paper money or a country's currency is directly connected to the value of gold.

Fixed Exchange Rates

A government or central bank policy to maintain the country’s currency at a constant value relative to another currency or a benchmark.