Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 36

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 taxes.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

---

Definitions:

Standard Error

A statistical term that describes the standard deviation of the sampling distribution of a statistic, often used to measure the accuracy with which a sample represents a population.

Correlation

A statistical measure that indicates the extent to which two or more variables fluctuate together.

Standard Deviation

A statistical measurement that shows how much variation or dispersion exists from the average (mean), indicating how spread out the values in a data set are.

Mean

The arithmetic average of a set of numbers, calculated by adding up all the values and then dividing by the count of numbers.