Under a Flexible-Price Monetary Approach to the Exchange Rate

Multiple Choice

Under a flexible-price monetary approach to the exchange rate

A) when the domestic money supply falls, the price level would eventually fall, increasing the interest rate.
B) when the domestic money supply falls, the price level would fall right away, causing a reduction in the interest rate.
C) when the domestic money supply falls, the price level would fall right away, causing an increase in the interest rate.
D) when the domestic money supply falls, the price level would eventually fall, keeping the interest rate constant.
E) when the domestic money supply falls, the price level would fall right away, keeping the interest rate constant.