Question

) If Denmark wished to keep its exchange rate with the euro fixed, what monetary policy options are available to lower unemployment in the short run?

Answer 1

Answer:please refer to the explanation section

Explanation:

Interest rate has an inverse relationship with the level of  exchange rate, an increase in interest rate decreases the exchange rate level fro P3 to P1 for example. A decrease interest rate will increase the level of exchange rate.

An increase in money supply will decrease unemployment because the economy will have more capital investment which will increase job opportunities for people.

This tells us that if Denmark wants to keep a fixed exchange rate and lower unemployment rate in the short run, The central Bank of Denmark must have a fixed interest rate and increase the supply of money