Under a Flexible-Price Monetary Approach to the Exchange Rate

question 51

Multiple Choice

Under a flexible-price monetary approach to the exchange rate

• A) when the domestic money supply falls, the price level would eventually fall, increasing the interest rate.
• B) when the domestic money supply falls, the price level would fall right away, causing a reduction in the interest rate.
• C) when the domestic money supply falls, the price level would fall right away, causing an increase in the interest rate.
• D) when the domestic money supply falls, the price level would eventually fall, keeping the interest rate constant.
• E) when the domestic money supply falls, the price level would fall right away, keeping the interest rate constant.

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