Suppose a Country Has Floated Its Currency and the Central

question 279

Multiple Choice

Suppose a country has floated its currency and the central bank sets a contractionary monetary policy. Which of the following is LIKELY to occur?

• A)The country's currency will depreciate.
• B)Interest rates will rise, the currency will appreciate, and any inflationary gap will shrink.
• C)Interest rates will fall, which will reduce aggregate demand.
• D)Net exports will be larger.

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Definitions:

Lenz's Law

A principle stating that an induced electromotive force (emf) always generates a current whose magnetic field opposes the original change in magnetic flux.

Left-hand Generator Rule

A rule that predicts the direction of induced current flow in a generator's conductor moving perpendicular to a magnetic field, using the left hand to demonstrate orientation.

Inductors

Electrical components that store energy in a magnetic field when electric current flows through them, typically used in filters and chokes.

Inductance

The property of an electrical conductor that causes it to oppose a change in the current flowing through it, stored in the magnetic field created by the current.