In general, which of the following is NOT a characteristic of a fixed exchange rate regime as defined by the text?
a. Capital is mobile.
b. Exchange rates are determined by the market in the short run.
c. Arbitrage is free to operate.
d. Government takes an active role in foreign currency market intervention.
Answer: b. Exchange rates are determined by the market in the short run.
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A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________
A) does not change; decreases B) does not change; does not change C) does not change; increases D) increases; does not change
Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion. To move the economy back to potential GDP, Congress should
A) lower government purchases by $500 billion. B) raise government purchases by $500 billion. C) raise government purchases by more than $500 billion. D) lower taxes by an amount less than $500 billion. E) lower taxes by $500 billion.