Under a Fixed Exchange Rate System,a Neutral Fiscal Policy,and Perfect

question 196

Multiple Choice

Under a fixed exchange rate system,a neutral fiscal policy,and perfect capital mobility,a contractionary monetary policy is ineffective because the:

• A) Fed's attempt to reduce money supply will be offset by an inflow of gold.
• B) Fed's attempt to reduce money supply raises interest rates;capital flows into the United States from other countries,and the American money supply increases.
• C) capital account is unaffected by the Fed's actions.
• D) Fed's attempt to reduce money supply reduces interest rates;capital flows out of the United States,and the U.S.money supply increases.

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Definitions:

Maturity Date

The specific date on which the principal amount of a bond, loan, or other financial instrument is due to be paid in full.

Contract Rate

The interest rate specified in a contract, such as that in a loan or bond agreement.

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its interest obligations from its earnings before interest and taxes.

Income Statement

A financial statement that shows a company’s revenues, expenses, and profits over a specific period, typically a quarter or year.