In the Case of Purely Flexible Exchange Rates,a Decrease in Domestic

question 6

Multiple Choice

In the case of purely flexible exchange rates,a decrease in domestic real income,with constant prices and domestic credit,will lead to

• A)an increase in international reserves.
• B)the depreciation of the domestic currency.
• C)the appreciation of the domestic currency.
• D)no change in the value of the domestic currency.

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Definitions:

Liquidity Measures

Financial metrics used to determine how quickly a company can turn its assets into cash to meet short-term obligations. Common measures include current ratio and quick ratio.

Current Ratio

The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year.

Quick Ratio

A liquidity measure that indicates a company's ability to cover its short-term liabilities with its most liquid assets.

Cash Ratio

A liquidity ratio that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents alone.