Question: Why is fiscal policy effective but monetary policy ineffective under fixed exchange rates? Why is the opposite true under flexible rates?

Why is fiscal policy effective but monetary policy ineffective under fixed exchange rates? Why is the opposite true under flexible rates?

Step by Step Solution

★★★★★

3.21 Rating (173 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

With a fixed exchange rate a monetary policy cannot be used to target domestic inflation and to smoo... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Word file Icon

1334-B-A-A-F-M(269).docx

120 KBs Word File

Students Have Also Explored These Related Micro Economics Questions!

Q:

Antonio s Company has been making pizza sauce for the last 9 0 years. The company supplies pizza sauce to three different market segments including food service firms, manufacturers, and...

Q:

Why is domestic monetary policy ineffective in an open economy under a fixed exchange rate regime?

Q:

1. What is monetary policy and how does the Federal Reserve execute changes in monetary policy? 2. What is fiscal policy and how is it different from monetary policy? 3. How do monetary and fiscal...

Q:

Why is it said that decisions on fiscal and monetary policy are, at least in part, political decisions that cannot be made on objective economic criteria?

Q:

2. According to the "Impossible Trinity," countries have to select any two of the following three policy objectives (but not the third): I. Fixed Exchange Rates, Pegged Exchange Rates and Flexible...

Q:

Governments can retain monetary policy independence and achieve balance in its external accounts: Multiple Choice but only by sacrificing fiscal policy independence. None of the options. with fixed...

Q:

The goal of this assignment is to go through many misconceptions that exist around us about inflation and interest rates- and how much the USA (or country of your choice) is a part of the global...

Q:

Label the following statements as true, false or uncertain, and provide explanation for your answer. (A). The gold standard was an international monetary system which combined fixed exchange rates...

Q:

Which of the following best explains the rationale that there is less reliance on adopting an interest rate policy and instead there is more reliance on monitoring the exchange rate when managing the...

Q:

Questions . TABLE 1 ________________________________________ The U.S. Balance of Payments, 1991 (billion dollars; + is surplus of receipts, - is deficit) ________________________________________...

Q:

Question 1 (0.2 points) P AS AD; ADl Y In the figure shown, when government expenditure falls, the short-run equilibrium in the economy moves from 0 point x to point y. 0 point y to point x. O point...

Q:

Based on the activities table below; Activity Immediate Predecessors Copmletion time (days) A B C D E F G H I J K A D E B G and I C C J 3 8 5 4 9 2 5 10 6 6 6 Cost* 15,000 40,000 25,000 20,000 45,000...

Q:

Compute the present value equivalent of the following series of cash flows if i =20%. Year 1: $100 Year 2: $120 Year 3: $160 Year 4: $160 Year 5: $240

Q:

Ury shares an example involving which two countries to illustrate successful negotiation? Group of answer choices India and Pakistan Israel and Palestine The U . S . and Soviet Union North and South...

Q:

Suppose MegaStore, Inc., signed a $750,000, 15-year, 10% note payable to finance the expansion of its business on January 1, 2010. The terms provide for semiannual payments of $49,000 on June 30 and...

Q:

Allison delivers one baby, and a year later she delivers a second baby. Let C be the event that at least one of the babies is a girl (either the first, or the second, or both). Let D be the event...

Q:

Selva Inc. makes keyboards for tablets. Budgeted direct labour hours for the first three months of the coming year are: January ................ 13,140 February ...............12,300...

Q:

At a certain university, 60% of undergraduate students are male, and 40% are female. Ten percent of females change their majors at least once. Overall, 30% of students change their majors at least...

Q:

Selva Inc. makes keyboards for tablets. Planned production in units for the first three months of the coming year are: January .................. 43,800 February ................. 41,000 March...

Q:

What is discounting? How do we calculate a present value using discounting?

Q:

You are given the following spot exchange rates: $1 = 3 francs, $1 = 4 schillings, and 1 franc = 2 schillings. Ignoring transaction costs, how much profit could a person make via three-point...

Q:

In a free market, what factors underlie currency exchange values? Which factors best apply to long- and short-term exchange rates?

Q:

In a free market, what factors underlie currency exchange values? Which factors best apply to long- and short-term exchange rates?

Q:

Powder Mountain (PM) ski resort is currently using a Skidata barcode ticketing system. PM purchased the system three years ago for $1 million. The system includes barcode scanners and point-of-sale...

Q:

Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $90, and the cost...

Q:

2.1.3 Question Help A frequency table of grades has five classes (A, B, C, D, F) with frequencies of 3, 15, 18, 6, and 2 @ respectively. Using percentages, what are the relative frequencies of the...