7. Suppose there are two countries that are identical in every way with the following excep- tion. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose taxes are increased in both countries by the same amount. Given this information, we know that A. the change in output in A will be greater than in B. B. the change in output in B will be greater than in A. C. the change in output will be the same in both countries. D. the relative output effects are ambiguous. 8. In a country pursuing a fixed exchange rate regime, suppose a budget is passed that calls for a reduction in government spending. This reduction in government spending will cause which of the following to occur? A. A reduction in i and an increase in E. B. A reduction in investment. C. No change in output. D. No change in net exports. E. An increase in imports.

7. Suppose there are two countries that are identical in every way with the following excep- tion. Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose taxes are increased in both countries by the same amount. Given this information, we know that A. the change in output in A will be greater than in B. B. the change in output in B will be greater than in A. C. the change in output will be the same in both countries. D. the relative output effects are ambiguous. 8. In a country pursuing a fixed exchange rate regime, suppose a budget is passed that calls for a reduction in government spending. This reduction in government spending will cause which of the following to occur? A. A reduction in i and an increase in E. B. A reduction in investment. C. No change in output. D. No change in net exports. E. An increase in imports.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 17QA

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