Under a Fixed Exchange Rate System, a Neutral Fiscal Policy

question 57

Multiple Choice

Under a fixed exchange rate system, a neutral fiscal policy, and perfect capital mobility, a contractionary monetary policy is ineffective because the

• A) Federal Reserve's attempt to reduce the money supply will be offset by an inflow of gold.
• B) Fed's attempt to reduce the money supply raises interest rates; capital flows into the United States from other countries; and the U.S. money supply increases.
• C) capital account is unaffected by the Fed's actions.
• D) Fed's attempt to reduce the money supply reduces interest rates; capital flows out of the United States; and the U.S. money supply increases.

Derive conclusions about consumption and trade patterns based on utility functions.

Grasp the implications of quasilinear utility functions for Pareto optimal allocations.

Understand the conditions under which a Pareto optimal allocation is achieved.

Understand best practices and etiquette for effective virtual communication.

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