Suppose a Country Switches from a Fixed to a Flexible

question 43

Multiple Choice

Suppose a country switches from a fixed to a flexible exchange rate.Which of the following will occur as a result of this change?

• A)Monetary policy will become a less effective tool for changing output.
• B)A given change in government spending will now have a greater effect on output.
• C)Both fiscal and monetary policy will become more effective in changing GDP.
• D)Both fiscal and monetary policy will become completely ineffective in changing GDP.
• E) none of the above

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Definitions:

Sales Tax

A tax levied on sales of goods and services, typically calculated as a percentage of the purchase price, paid by consumers at the point of sale.

Interest Rates

Charges applied on borrowed money or returns on invested capital, which vary based on the time, inflation, risk, and liquidity.

Tax Reform

Changes made to improve a tax system, often involving amendments to tax laws and policies.

Supply Curve

A chart that illustrates the amount of a product that suppliers are prepared to produce and sell at various price points.