Under a fixed exchange rate regime, we know that an increase in stock market wealth that increases consumption will cause:
A) a decrease in net exports.
B) an increase in investment.
C) an increase in imports.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

An increase in stock market wealth that boosts consumption can lead to a decrease in net exports due to higher demand for imported goods (thus increasing imports), and potentially increase investment as consumer spending stimulates economic activity. All these effects are interconnected under a fixed exchange rate regime.

Under a Fixed Exchange Rate Regime, We Know That an Increase