Assume That There Is a Simultaneous Tax Cut and Monetary

Multiple Choice

Assume that there is a simultaneous tax cut and monetary contraction. In a flexible exchange rate regime, we know with certainty that:

A) the exchange rate would increase.
B) the exchange rate would increase and output would decrease.
C) the exchange rate would decrease and output would increase.
D) the exchange rate and output would both increase.
E) the exchange rate would increase and output would remain unchanged.