Under a System of Flexible Exchange Rates, an Increase in the Domestic

Multiple Choice

Under a system of flexible exchange rates, an increase in the domestic price level will reduce the amount of domestic goods demanded since

A) lower real money balances will increase interest rates and reduce domestic spending
B) domestic goods will become less competitive with foreign goods and net exports will decrease
C) higher domestic prices will reduce disposable income and therefore consumption
D) both A) and B)
E) both B) and C)