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.

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Definitions:

Embryo

An early stage of development in multicellular organisms following fertilization, during which the organism undergoes rapid cell division and differentiation.

Zygote's Inner Cells

Zygote's inner cells, part of the blastocyst, give rise to the embryo and ultimately the fetus, playing a crucial role in early human development.

Rooting

An innate reflex in infants that causes them to turn their head toward a touch on their cheek or mouth, facilitating breastfeeding.

Nourishment

The substances necessary for growth, health, and good condition, usually obtained from food.