24. “But economic theory and our own experience tell us that using monetary policy to drive down the

24. “But economic theory and our own experience tell us that using monetary policy to drive down the exchange rate will be successful only until …….” This is best completed with. 126a) the resulting trade deficit wipes it out b) prices rise to restore the real exchange ratec) prices rise to restore the nominal exchange rated) prices fall to restore the nominal exchange rate25. “Exporters and some economists have argued that the central bank should drive _____ the value of the dollar to boost economic activity. The Fed claims, however, that its ability to influence the ____ exchange rate is severely limited.” The blanks are best filled witha) up; real b) down; real c) up; nominal d) down; nominal”If inflation exists in the rest of the world, but not in Canada, Canada’s merchandise trade surplus should soar with exports becoming cheap and imports expensive. Of course, that would stimulate economic activity in Canada and, pretty soon, the inflation rate would begin to rise. How would the authorities counter that undesirable development? By keeping money growth low and interest rates much higher than U.S. interest rates – the same way that the Bank of Canada has fought inflation in the past and still does today.”26. Under a fixed exchange rate this thinking is wrong becausea) fighting inflation is futile in this contextb) the merchandise trade surplus should not developc) low money growth and high interest rates cannot attack inflationd) it is the balance of payments that is important, not the balance of trade