Under a fixed exchange rate and perfect capital mobility the effect of an external shock from a change in net exports:
A) is moderated by a change in the exchange rate.
B) causes changes in domestic money supply and inflation and the real exchange rate.
C) has no effect on domestic AD because the exchange rate is fixed.
D) calls for an offsetting change in domestic monetary policy.

Question

Quizplus · Accepted Answer

Under a fixed exchange rate and perfect capital mobility, an external shock from a change in net exports will cause changes in domestic money supply and inflation and the real exchange rate.

Under a Fixed Exchange Rate and Perfect Capital Mobility the Effect