Consider an economy with perfect capital mobility, fixed price level and flexible exchange rate. Starting from equilibrium, suppose there is a monetary expansion.
Which of the following are true for the new equilibrium, as compared to the initial equilibrium?
(A) Output will be higher
(B) Consumption will be higher
(C) Interest rate will be lower
(D) Interest rate will be higher
Choose the correct answer from the options given below:
1
(A) Only
2
(B) Only
3
(A) and (B) Only
4
(A) and (C) Only