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, under a flexible exchange rate a fall in government spending causes:

A) a fall in the level of output and an increase in the consumer price index.
B) a fall in the level of output and a decrease in the consumer price index.
C) an increase in the level of output and a decrease in the consumer price index.
D) an increase in the level of output and an increase in the consumer price index.