In the Mundell-Fleming Model with Fixed Exchange Rates, Attempts by the Central

Multiple Choice

In the Mundell-Fleming model with fixed exchange rates, attempts by the central bank to increase the money supply lead the exchange rate to fall, giving arbitrageurs the incentive to ______ the central bank, which causes the money supply to ______.

A) sell domestic currency to; increase
B) sell domestic currency to; decrease
C) buy domestic currency from; increase
D) buy domestic currency from; decrease