In the Mundell-Fleming Model with Fixed Exchange Rates, Attempts by the Central

question 27

Multiple Choice

In the Mundell-Fleming model with fixed exchange rates, attempts by the central bank to increase the money supply lead the exchange rate to fall, giving arbitrageurs the incentive to ______ the central bank, which causes the money supply to ______.

• A) sell domestic currency to; increase
• B) sell domestic currency to; decrease
• C) buy domestic currency from; increase
• D) buy domestic currency from; decrease

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Definitions:

Effector

A part of the body, such as a muscle or organ, that produces a response when stimulated by a nerve impulse.

Interneuron

Neuron located within the central nervous system that conveys messages between parts of the central nervous system.

Stroke

Condition resulting when an arteriole in the brain bursts or becomes blocked by an embolism; cerebrovascular accident.

Interneurons

Neurons that transmit impulses between other neurons, especially as part of a reflex arc in the central nervous system.