If Domestic Prices Are Assumed to Be Endogenous in the Mundell-Fleming

question 104

Multiple Choice

If domestic prices are assumed to be endogenous in the Mundell-Fleming model, then a fall in government spending leads to:

• A)a larger decline in the level of output under a flexible exchange rate compared to a fixed exchange rate regime.
• B)a larger decline in the level of output under a fixed exchange rate compared to a flexible exchange rate regime.
• C)a decline in the level of output under a fixed exchange rate regime, but no change under a flexible exchange rate regime.
• D)a similar decline in the level of output under a fixed exchange rate and a flexible exchange rate regime.

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Definitions:

Fetus

A developing mammal or human within the womb, after the embryonic stage and before birth.

Embryo

An embryo is an early stage of development of a multicellular organism following fertilization, prior to becoming a fetus.

Blastocyst

An early stage of embryonic development in mammals; a structure formed in the early development of mammals. It possesses an inner cell mass, which subsequently forms the embryo.

Conception

The process of fertilization where a sperm cell unites with an egg cell, leading to the formation of a zygote.