If the Exchange Rate Is Allowed to Have a Direct

Multiple Choice

If the exchange rate is allowed to have a direct effect on the consumer price index, then a drop in government spending leads to:

A) a larger fall in the level of output under a flexible exchange rate than under a fixed exchange rate regime.
B) a larger fall in the level of output under a fixed exchange rate than under a flexible exchange rate regime.
C) an increase in the level of output under a flexible exchange rate regime.
D) an increase in the level of output under a fixed exchange rate regime.