Assume that policy makers are pursuing a fixed exchange rate regime. Assume that the economy is initially operating at the natural level (i.e., Y = Yn). Suppose an increase in wealth causes households to increase consumption. This wealth-induced increase in consumption will cause which of the following to occur?
A) The real exchange rate will be permanently higher in the medium run.
B) The real exchange rate will be permanently lower in the medium run.
C) The effects of this devaluation on the real exchange rate will be ambiguous in the medium run.
D) The real exchange rate will be unchanged in the medium run.
B
Economics
You might also like to view...
If the consumption function is C = 25 + 0.9y and income increases by $100, then savings will increase by
A) $10. B) $25. C) $90. D) $115.
Economics
Supply is elastic if
A) a 1 percent change in price leads to a larger percentage change in quantity supplied. B) a 1 percent change in price leads to a smaller percentage change in quantity supplied. C) the slope of the supply curve is positive. D) the good in question is a normal good.
Economics