In the Short Run, the Chain of Causality Between Monetary

question 106

Multiple Choice

In the short run, the chain of causality between monetary policy and the exchange rate under fixed rates differs from a floating rate. How?

• A) In a fixed rate regime, the money supply is determined first, then interest rates, then the short-run exchange rate.
• B) In a fixed rate regime, interest rates are determined first, then the money supply, and then the short-run exchange rate.
• C) In a floating rate regime, exchange rates are determined first, then the nominal interest rate (according to uncovered interest parity), and then the money supply.
• D) In a fixed rate regime, exchange rates are determined first, then the nominal interest rate (according to uncovered interest parity), and then the money supply.

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