Suppose Policy Makers Are Pursuing a Policy to Fix the Exchange

question 70

Multiple Choice

Suppose policy makers are pursuing a policy to fix the exchange rate.In such a system with perfect capital mobility,an open market purchase of domestic bonds by the domestic central bank will eventually result in

• A)a permanent increase in the monetary base.
• B)a permanent reduction in the monetary base.
• C)a change in the composition of the monetary base.
• D)a gradual reduction in the domestic interest rate.

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