Question 9 Fiscal policy is more effective at stabilizing output under a fixed exchange rate compared...

Transcribed Image Text:

Question 9 Fiscal policy is more effective at stabilizing output under a fixed exchange rate compared to a floating regime because of the following reason(s). [Note: Choose all the correct answer(s).] 4 pts A given increase in government spending must be accompanied by a proportionate decrease in taxes. Fiscal expansion under the fixed regime must be accompanied by an increase in domestic money supply to keep the exchange rate constant. Under the fixed regime, a fiscal expansion by itself would not increase the domestic interest rate. Under the floating regime, the central bank is not required to increase the domestic interest rate in response to a contractionary fiscal policy. Question 9 Fiscal policy is more effective at stabilizing output under a fixed exchange rate compared to a floating regime because of the following reason(s). [Note: Choose all the correct answer(s).] 4 pts A given increase in government spending must be accompanied by a proportionate decrease in taxes. Fiscal expansion under the fixed regime must be accompanied by an increase in domestic money supply to keep the exchange rate constant. Under the fixed regime, a fiscal expansion by itself would not increase the domestic interest rate. Under the floating regime, the central bank is not required to increase the domestic interest rate in response to a contractionary fiscal policy. Question 9 Fiscal policy is more effective at stabilizing output under a fixed exchange rate compared to a floating regime because of the following reason(s). [Note: Choose all the correct answer(s).] 4 pts A given increase in government spending must be accompanied by a proportionate decrease in taxes. Fiscal expansion under the fixed regime must be accompanied by an increase in domestic money supply to keep the exchange rate constant. Under the fixed regime, a fiscal expansion by itself would not increase the domestic interest rate. Under the floating regime, the central bank is not required to increase the domestic interest rate in response to a contractionary fiscal policy.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answers are Fiscal expansio... View the full answer