Under the flexible exchange rate regime,which of the following variables in the monetary approach becomes zero and is dropped out of the equation?
A) Percentage change in domestic credit
B) Percentage change in spot exchange rate
C) Percentage change in foreign reserves
D) Percentage change in money demand

Question

Quizplus · Accepted Answer

Under the flexible exchange rate regime, the percentage change in foreign reserves becomes zero and is dropped out of the monetary approach equation. This is because the central bank does not intervene or control the exchange rate, and hence does not need to hold reserves to maintain it.

Under the Flexible Exchange Rate Regime,which of the Following Variables