Question

When exchange rates are fixed, a temporary expansion in the money supply will: A. increase output....

When exchange rates are fixed, a temporary expansion in the money supply will:

A. increase output.

B. leave output unchanged.

C. lower output.

D. increase the exchange rate.

Explain your answer. DO NOT COPY FROM COURSEHERO!

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Option B leave output level unchanged

Explanation

Fixed exchange rate is a system in which the exchange rate is determined by government or authority.if there is Increase in money supply them in short run it will cause appreciation in Currency but in long run it has no impact on output level. When money supply Increase, interest rate falls and Fed will come forward and intervene to maintain the equilibrium exchange rate by using it's policies and ultimately there will be no change in interest rate, income or exchange rate and output level . Hence, monetary policy becomes ineffective as a policy tool in fixed exchange rate system.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
When exchange rates are fixed, a temporary expansion in the money supply will: A increase output...
When exchange rates are fixed, a temporary expansion in the money supply will: A increase output B leave output unchanged C lower output D increase the exchange rate Explain your answer.
37. A(n) _____ in the money supply in a country _____ the domestic interest rates. a....
37. A(n) _____ in the money supply in a country _____ the domestic interest rates. a. expansion; increases b. expansion; decreases c. contraction; decreases d. contraction; has no impact on 38. A(n) _____ in a country’s money supply causes international capital _____. a. expansion; outflows b. expansion; inflows c. contraction; outflows d. contraction; stock to stabilize 39. Following an expansion of the money supply, a government committed to maintaining a fixed exchange rate must: a. accept a surplus in its...
"When a central bank expands the money supply," domestic interest rates rise and the exchange rate...
"When a central bank expands the money supply," domestic interest rates rise and the exchange rate rises domestic interest rates fall and the exchange rate rises domestic interest rates rise and the exchange rate falls domestic interest rates fall and the exchange rate falls
•Temporary changes in fiscal policy are more effective in influencing output and employment in the short...
•Temporary changes in fiscal policy are more effective in influencing output and employment in the short run: –The rise in aggregate demand and output due to expansionary fiscal policy raises demand for real monetary assets, putting upward pressure on interest rates and on the value of the domestic currency –To prevent an appreciation of the domestic currency, the central bank must buy foreign assets, thereby increasing the money supply and decreasing interest rates –In effect, under fixed exchange rates an...
When a temporary adverse supply shock hits a large open economy, it causes the current account...
When a temporary adverse supply shock hits a large open economy, it causes the current account to ________ and investment to ________. Answer: A, but i have no idea why the investment falls. can anyone explain in detail ? ( not in the form of your handwriting, i may not recognize it) A) fall; fall B) rise; remain unchanged C) fall; remain unchanged D) rise; fall
Explain why an increase in the money supply can affect interest rates in different ways. When...
Explain why an increase in the money supply can affect interest rates in different ways. When answering this question, describe the potential impact of the supply and demand for loanable funds.
What impact does an increase in the money supply have on a country’s exchange rate in...
What impact does an increase in the money supply have on a country’s exchange rate in a floating exchange rate system? Provide a graph of the foreign exchange market to illustrate. Explain briefly.
1. In a fixed exchange rate regime how might an increase in the money supply effect...
1. In a fixed exchange rate regime how might an increase in the money supply effect the economy? expansionary monetary policy has no effect on the economy other than depleting reserves the LM curve would shift right permanently decreasing interest rates and stimulating higher economic activity the IS curve shifts right creating jobs and economic growth the BP curve shifts up causing crisis in financial markets 2. Which of the following policy combinations represents countries in the European Union? little...
when money supply increase permanently in a large open economy, what happens to the long term...
when money supply increase permanently in a large open economy, what happens to the long term nominal interest rate? a, long term nominal interest rate increase b, long term nominal interest rate decrease c, long term nominal interest rate unchanged d, long term nominal interest rate may increase or decrease
According to the real exchange rate approach, an increase in the money supply (will/will not) affect...
According to the real exchange rate approach, an increase in the money supply (will/will not) affect the real exchange rate.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT