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:

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