If the monetary authority contracts money supply and the fiscal authority raisestaxes, then in a flexible exchange rate regime we know with certainty that:the exchange rate would decreasethe exchange rate would decrease and output would increaseoutput would decreasethe exchange rate would increase and output would decreasethe exchange rate and output would both decrease

When the central bank contracts the money supply with raising the interest rates, it makes the…

Answered: If the monetary authority contracts…

If the monetary authority contracts money supply and the fiscal authority raises taxes, then in a flexible exchange rate regime we know with certainty that:

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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A: please find the explanation below.

Concept explainers

Unemployment and Cost of Unemployment

Unemployment is the state of being unemployed, even when an individual is actively seeking work opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed.

Question

If the monetary authority contracts money supply and the fiscal authority raises
taxes, then in a flexible exchange rate regime we know with certainty that:
the exchange rate would decrease
the exchange rate would decrease and output would increase
output would decrease
the exchange rate would increase and output would decrease
the exchange rate and output would both decrease

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