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.

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Currency Market

The currency market, also known as the foreign exchange market, consists of currencies worldwide. This market determines the rate of all currencies based on the buying and selling of forex. It is an over-the-counter market. It is the largest and most liquid market based on trade volume.