When exchange rates are fixed, a temporary expansion in the money supply will:
A) increase output.
B) leave output unchanged.
C) lower output.
D) increase the exchange rate.

Question

Quizplus · Accepted Answer

When exchange rates are fixed, a temporary expansion in the money supply will have no effect on the exchange rate. However, it will not increase output either as it is a temporary expansion and not a permanent one. Therefore, output will remain unchanged.

When Exchange Rates Are Fixed, a Temporary Expansion in the Money