Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

question 47

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime.Assume that the economy is initially operating at the natural level (i.e.,Y = Yn) .Suppose fiscal policy makers increase government spending.This fiscal contraction will cause which of the following?

• A)the real exchange rate will be permanently higher in the medium run.
• B)the real exchange rate will be permanently lower in the medium run.
• C)the effects of this devaluation on the real exchange rate will be ambiguous in the medium run.
• D)the real exchange rate will be unchanged in the medium run.
• E)none of the above

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Definitions:

Section 11

Often refers to a specific provision in a legal document or piece of legislation; the exact meaning depends on the context.

Securities Act of 1933

A U.S. legislation enacted as a result of the stock market crash of 1929, requiring that offers and sales of securities are registered, providing investors with truthful information on securities.

Liability

Legal responsibility or obligation that arises from actions or as a result of a contractual agreement, potentially requiring the liable party to compensate for damages or losses incurred.

Underwriters

Underwriters are entities, such as banks or financial institutions, that assume the risk associated with issuing and selling securities in the market.