A number of situations can arise that will cause individuals to believe that policy makers might change the pegged value of a fixed exchange rate. Suppose financial market participants expect a revaluation in the future. The interest parity condition will be maintained if which of the following policy actions are taken in the current period?
A) a reduction in the pegged value of the domestic currency
B) an increase in i
C) a reduction in i
D) an increase in government spending
Question 2
In the following production function, Y = f(K, NA), suppose A increases by 20. This 20 increase in A implies that
A) the same output can be produced with 20 less labor.
B) the effective quantity of labor has increased by 20.
C) output will increase by less than 20.
D) all of the above
E) both A and C.
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Prove the argument using two column proof number 5 only
Types of policy
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