For this question,assume that policy makers are pursuing a fixed exchange rate regime.Now suppose that households decide to decrease consumption because of,for example,a reduction in consumer confidence.Given this information,we would expect which of the following to occur?
A)a reduction in the domestic interest rate
B)an increase in E
C)a reduction in E
D)a reduction in investment
E) none of the above

Question

Quizplus · Accepted Answer

In a fixed exchange rate regime, a decrease in consumption leads to lower aggregate demand, which can reduce investment due to lower expected returns. The exchange rate (E) remains unchanged due to the fixed regime.

For This Question,assume That Policy Makers Are Pursuing a Fixed