If Domestic Prices Are Assumed to Be Endogenous in the Mundell-Fleming

Multiple Choice

If domestic prices are assumed to be endogenous in the Mundell-Fleming model, then a fall in government spending leads to:

A) a larger decline in the level of output under a flexible exchange rate compared to a fixed exchange rate regime.
B) a larger decline in the level of output under a fixed exchange rate compared to a flexible exchange rate regime.
C) a decline in the level of output under a fixed exchange rate regime, but no change under a flexible exchange rate regime.
D) a similar decline in the level of output under a fixed exchange rate and a flexible exchange rate regime.