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Author Question: Illustrate the effectiveness of monetary policy with fixed exchange rates. What will be an ideal ... (Read 125 times)

ETearle

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on: Jun 30, 2018
Illustrate the effectiveness of monetary policy with fixed exchange rates.
 
  What will be an ideal response?

Question 2

Fiscal expansion under fixed exchange rates will have what temporary effect?
 
  A) the money supply will decrease.
  B) output will decrease.
  C) the exchange rate will increase.
  D) the exchange rate will decrease.
  E) there will be no effect.


mariahkathleeen

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Reply #1 on: Jun 30, 2018
Answer to Question 1

The required intervention to maintain the fixed exchange rate will undo any effect on income of an increase or decrease in the money supply. Illustrate by shifting LM curve and then explaining how intervention will return LM to original position.

Answer to Question 2

D


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