In the short run, the chain of causality between monetary policy and the exchange rate under fixed rates differs from a floating rate. How?
a. In a fixed rate regime, the money supply is determined first, then interest rates, then the short-run exchange rate.
b. In a fixed rate regime, interest rates are determined first, then the money supply, and then the short-run exchange rate.
c. In a floating rate regime, exchange rates are determined first, then the nominal interest rate (according to uncovered interest parity), and then the money supply.
d. In a fixed rate regime, exchange rates are determined first, then the nominal interest rate (according to uncovered interest parity), and then the money supply.
Ans: d. In a fixed rate regime, exchange rates are determined first, then the nominal interest rate (according to uncovered interest parity), and then the money supply.
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