If the Bank of Canada Maintains a Fixed Exchange Rate

question 93

Multiple Choice

If the Bank of Canada maintains a fixed exchange rate, which effect will an expansionary fiscal policy have?

• A) It will cause a large and permanent rightward shift in the AD curve.
• B) It will cause a large and permanent leftward shift in the AD curve.
• C) It will have no permanent effect on the position of the AD curve, but it will cause interest rates to rise.
• D) It will have no permanent effect on either the position of the AD curve or the interest rate.