When the Exchange Rate Appreciates in the Short Run and Then

question 96

Multiple Choice

When the exchange rate appreciates in the short run and then depreciates to its original level in the long run, it implies that the domestic money supply has:

• A) temporarily risen.
• B) permanently risen.
• C) temporarily fallen.
• D) permanently fallen.

---

Definitions:

Recession

A temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Transfer Payments

Payments made by governments to individuals without any goods or services being received in return, such as welfare, social security, and unemployment benefits.

Federal Budget Deficit

The amount by which a government's expenditures exceed its tax revenues over a specific fiscal period, leading to borrowing or debt accumulation.

Economic Growth

Growth in the inflation-corrected value of goods and services that an economy outputs over time.