Suppose There Are Two Countries That Are Identical in Every

Multiple Choice

Suppose there are two countries that are identical in every way with the following exception. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose taxes are increased in both countries and rise by the same amount. Given this information, we know that:

A) the change in output in A will be greater than in B.
B) the relative output effects are ambiguous.
C) the relative output effects depend on relative prices.
D) the change in output will be the same in both countries.
E) the change in output in B will be greater than in A.