Assuming the Free Flow of Capital Across Borders, If Country

question 65

Multiple Choice

Assuming the free flow of capital across borders, if country A wants to fix its exchange rate with country B, then:

• A) country A's inflation rate will have to match country B's.
• B) country A's monetary policy must be conducted so the inflation rate in country A matches the inflation rate in country B.
• C) country A's monetary policy will not be able to be used to address domestic issues.
• D) all of the answers given are correct.

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Definitions:

Coefficient

In algebraic expressions, it's the numerical or fixed quantity that comes before and multiplies the variable.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers, typically downward sloping.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflecting its sensitivity to price changes.

Price Increase

A rise in the cost of goods or services over time, which can affect purchasing power and economic dynamics.