Under a fixed exchange rate regime,suppose there is a reduction in housing wealth that causes a reduction in consumption.This wealth-induced reduction in consumption will cause
A)a reduction in investment.
B)an increase in net exports.
C)a reduction in imports.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

A reduction in housing wealth leads to decreased consumption, which can reduce overall demand, leading to lower investment. The decrease in domestic consumption can also reduce imports, and with lower domestic demand, net exports may increase as domestic goods become relatively cheaper for foreign buyers.

Under a Fixed Exchange Rate Regime,suppose There Is a Reduction