Suppose Policy Makers Are Pursuing a Policy to Fix the Exchange

Multiple Choice

Suppose policy makers are pursuing a policy to fix the exchange rate. In such a system with perfect capital mobility, an open market sale of domestic bonds by the domestic central bank will eventually result in:

A) a change in the composition of the monetary base.
B) a permanent increase in the monetary base.
C) a gradual decrease in the domestic interest rate.
D) a gradual increase in the domestic interest rate.
E) a permanent decrease in the monetary base.