In the case of purely flexible exchange rates,a decrease in domestic real income,with constant prices and domestic credit,will lead to
A)an increase in international reserves.
B)the depreciation of the domestic currency.
C)the appreciation of the domestic currency.
D)no change in the value of the domestic currency.

Question

Quizplus · Accepted Answer

In the case of purely flexible exchange rates, a decrease in domestic real income leads to a decrease in demand for domestic goods and services, causing a decrease in the exchange rate of the domestic currency. This means that the domestic currency depreciates.

In the Case of Purely Flexible Exchange Rates,a Decrease in Domestic