Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 21

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime.Assume that the economy is initially operating at the natural level (i.e.,Y = Yn) .Suppose fiscal policy makers increase government spending.This fiscal contraction will cause which of the following?

• A)The real exchange rate will be permanently higher in the medium run.
• B)The real exchange rate will be permanently lower in the medium run.
• C)The effects of this devaluation on the real exchange rate will be ambiguous in the medium run.
• D)The real exchange rate will be unchanged in the medium run.
• E) none of the above

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Definitions:

Marketing Chain

The series of processes and activities involved in moving a product from producer to consumer, including distribution and selling.

Vertical Merger

A merger between companies in the same industry but at different stages of the production process, such as a manufacturer merging with a supplier.

Horizontal Merger

A business consolidation that occurs between firms operating in the same industry.

Conglomerate Merger

A merger between companies operating in different industries, aimed at diversification or expansion of a corporate portfolio.