True or False?
The statement is true. As long as the key-currency country can shift its IS curve to the right by fiscal policy actions it can affect its output and employment in the short-run. Having set its IS curve with, given an unchanged money supply, its LM curve remaining unchanged, the key-currency country has increased its equilibrium level of income in the short run when wages and prices are fixed. The peripheral countries have to adjust their money supplies to produce a world interest rate consistent with the key-currency country's IS-LM intersection or their exchange rates will be bid away from the officially fixed levels.