Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 11

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 an increase in wealth causes households to increase consumption.This wealth-induced increase in consumption will cause which of the following to occur?

• 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.

---

Definitions:

Upper Limb

Refers to the part of the human body that includes the arm, forearm, wrist, hand, and fingers.

Brachial Artery

The major blood vessel of the (upper) arm that supplies blood to the arm and hand.

Venous Sinuses

Large channels in the brain that collect venous blood from the brain and lead it towards the internal jugular veins.

Cranial Cavity

The space within the skull that houses the brain, protected by the bones of the cranium.