If the Exchange Rate Is Allowed to Have a Direct

question 12

Multiple Choice

If the exchange rate is allowed to have a direct effect on the consumer price index, under a flexible exchange rate a fall in government spending causes:

• A)a fall in the level of output and an increase in the consumer price index.
• B)a fall in the level of output and a decrease in the consumer price index.
• C)an increase in the level of output and a decrease in the consumer price index.
• D)an increase in the level of output and an increase in the consumer price index.

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Definitions:

Wealth

The total value of all financial assets and physical possessions owned by an individual or entity, minus any liabilities owed.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values.

Budget Line

A graphical representation showing the combination of goods a consumer can purchase with a given income, based on the prices of those goods.

Expected Rate

Typically refers to the anticipated return or performance of an investment over a specific period.