If there is a fixed-exchange-rate system, then in the short run described by the Mundell-Fleming model:
A) the nominal exchange rate is fixed, but the real exchange rate is free to vary.
B) the real exchange rate is fixed, but the nominal exchange rate is free to vary.
C) both the nominal and real exchange rates are fixed.
D) the nominal exchange rate is fixed, but whether the real exchange rate is fixed depends on whether the central bank follows a rule of constant growth of the money supply.

Question

Quizplus · Accepted Answer

In a fixed-exchange-rate system, the nominal exchange rate is fixed by government intervention. The real exchange rate, which measures the relative prices of goods and services between two countries, is also fixed in the short run because the nominal exchange rate is fixed.

If There Is a Fixed-Exchange-Rate System, Then in the Short