Essay
Assume that, under a floating exchange rate system, the government pursues a contractionary policy.
(a) What will happen to the exchange rate if it uses contractionary monetary policy?
appreciate/depreciate
(b) What effect will this exchange rate movement have on aggregate demand?
increase it/decrease it
(c) What will happen to the exchange rate if it uses contractionary fiscal policy?
appreciate/depreciate
(d) What effect will this exchange rate movement have on aggregate demand?
increase it/decrease it
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(a) Appreciate, since contractionary mon...View Answer
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Correct Answer:
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