For this question,assume that policy makers are pursuing a fixed exchange rate regime and that output is initially less than the natural level of output.The economy will tend to move toward the natural level of output when which of the following occur?
A)an increase in the price level
B)a devaluation of the currency
C)an increase in the domestic interest rate
D)a reduction in the foreign price level
E) none of the above

Question

Quizplus · Accepted Answer

A devaluation of the currency under a fixed exchange rate regime can help an economy move toward its natural level of output by making exports cheaper and imports more expensive, thereby stimulating domestic demand and production.

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