Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 55

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime and that the economy is initially operating at the natural level of output.Which of the following will occur as a result of a revaluation?

• 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 revaluation on the real exchange rate will be ambiguous in the medium run.
• D)The real exchange rate will be unchanged in medium run.
• E) The nominal exchange will initially fall in the short run and then increase in the medium run.

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