Advocates of Flexible Exchange Rates Claim That Under Flexible Exchange

question 71

Multiple Choice

Advocates of flexible exchange rates claim that under flexible exchange rates, a currency

• A) depreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing the world demand for them.
• B) appreciation caused by increasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them.
• C) appreciation caused by decreasing the money supply would reduce unemployment by lowering the relative price of domestic products and increasing world demand for them.
• D) appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and increasing world demand for them.
• E) appreciation caused by increasing the money supply would increase unemployment by lowering the relative price of domestic products and by decreasing world demand for them.

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Definitions:

Net Working Capital

This reflects the variance between what a business owns in the short term versus what it owes, highlighting its financial robustness and operational productivity.

Accounts Payable

Money owed by a business to its suppliers shown as a liability on the company's balance sheet.

Inventory Increase

A situation where a company experiences a rise in the level of goods and materials on hand, reflecting either a buildup in anticipation of higher sales or slower sales than expected.

Depreciation Tax Shield

The tax saving achieved by a company from deducting depreciation expenses on its taxable income.