The IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curv

Question

The IS/LM/BP analysis suggests that, if the BP curve is flatter than the LM curve and the exchange rate is flexible, expansionary fiscal policy will lead to_of the country's currency This will make the fiscal policy Select one: effective in influencing national income than if the country had a fixed exchange rate. a. a depreciation / more b. a depreciation/less C. an appreciation /more d. an appreciation / less If a country's currency's external value is tied or pegged to the currency values of the country's leading trading partners, this arrangement is known as a Select one a. peg against the SDR. b. managed float. c. peg against a "basket" of currencies or a "composite." d. currency board If a country ties its currency to a specific foreign currency and allows its holdings of that currency to govern the country's money supply, this arrangement is known as a Select one a. currency board. b. floating exchange rate. c. monetary union. d. Special Drawing Right.

Explanation / Answer

1.

D

In the given scenario, fixed exchange rate, seems to be more suitable.

2.

C

It is the case of pegging against the basket of currencies that are owned by the trading partners.

3.

A

In currency board arrangement , exchange rate of one currency is fixed against another foreign currency

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