If a Country with a Floating Exchange Rate Follows a Contractionary

question 405

Multiple Choice

If a country with a floating exchange rate follows a contractionary monetary policy, with everything else remaining unchanged, it leads to a(n) _____ in interest rates and a(n) _____ in the currency.

• A) increase; depreciation
• B) decrease; appreciation
• C) decrease; depreciation
• D) increase; appreciation

---

Definitions:

Marginal Costs

The cost associated with producing one additional unit of a product or service.

Variable Costs

Expenses that change in proportion to the activity or volume of operations in a business.

Fixed Costs

Fixed charges that are unaffected by changes in production volume, including rental fees and payrolls.

Variable Cost Curve

The variable cost curve shows the relationship between total variable cost and the level of a firm's output, demonstrating how costs fluctuate with changes in production.