Question #28

Reading: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value

PDF File: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value.pdf

Page: 11

Status: Unattempted

Part of Context Group: Q28-29 First in Group
Shared Context
- Regarding the valuation of INR, Andrews would most likely use: A) Monetary approach. B) Portfolio Balance Approach. C) Mundell-Fleming model.
Question
Based on the Mundell-Fleming model, relative to the USD, the INR would most likely:
Answer Choices:
A. depreciate
B. appreciate
Explanation
Under the Mundell-Fleming model, given high capital mobility, an expansionary fiscal policy combined with a restrictive monetary policy would lead to appreciation of the INR in the short-term.
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