If the Exchange Rate Is Allowed to Have a Direct

question 33

Multiple Choice

If the exchange rate is allowed to have a direct effect on the consumer price index, then a drop in government spending leads to:

• A)a larger fall in the level of output under a flexible exchange rate than under a fixed exchange rate regime.
• B)a larger fall in the level of output under a fixed exchange rate than under a flexible exchange rate regime.
• C)an increase in the level of output under a flexible exchange rate regime.
• D)an increase in the level of output under a fixed exchange rate regime.

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