Advocates of Flexible Exchange Rates Claim That Under Flexible Exchange

question 41

Multiple Choice

Advocates of flexible exchange rates claim that under flexible exchange rates, the central bank of

• A) an overheated economy could cool down activity by increasing the money supply without worrying that undesired reserve inflow would undermine its stabilization effort.
• B) a cooled economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort.
• C) an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve inflow would undermine its stabilization effort.
• D) an overheated economy could cool down activity by contracting the money supply without worrying that undesired reserve outflow would undermine its stabilization effort.
• E) an overheated economy could cool down activity by decreasing employment and increasing output without worrying that this would undermine its stabilization effort.

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Definitions:

After-Tax Income

The net income an individual or corporation receives after all income taxes have been deducted from gross income.

Common Shareholders

Individuals or entities that own common shares in a corporation, granting them voting rights and a share in the company’s profits via dividends.

EPS

Earnings Per Share; a company's profit divided by the outstanding shares of its common stock.

Fiscal Year

A one-year period used by governments and businesses for accounting and financial reporting purposes, which may not coincide with the calendar year.