Assume That Policy Makers Are Pursuing a Fixed Exchange Rate

Multiple Choice

Assume that policy makers are pursuing a fixed exchange rate regime. Now suppose a budget is passed that calls for a decrease in government spending. This government spending cut will cause which of the following to occur?

A) No change in net exports.
B) No change in output.
C) An increase in imports.
D) A decrease in the interest rate.
E) A decrease in investment.