For this question, assume that policy makers are pursuing a fixed exchange rate regime and that output is initially less than the natural level of output. The economy will tend to move toward the natural level of output when which of the following occur?
A) an increase in the price level
B) a devaluation of the currency
C) an increase in the domestic interest rate
D) a reduction in the foreign price level
E) none of the above
B
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Given expectations of future exchange rates, when foreign returns are greater than domestic returns, investors will ___domestic assets, ___domestic currency, ___ foreign currency, and ___ foreign assets.
a. sell; sell; buy; buy b. sell; buy; sell; buy c. buy; sell; buy; sell d. buy; buy; sell; sell
Stock prices are
A) based less on the current profitability of firms than on their expected future profitability. B) based equally on the current profitability of firms and on their expected future profitability. C) not based on the current profitability of firms or on their expected future profitability. D) based more on the current profitability of firms than on their expected future profitability.