According to the Mundell-Fleming model, under fixed exchange rates expansionary fiscal policy causes income to ______, and under flexible exchange rates expansionary fiscal policy causes income to ______.
A) increase; increase
B) increase; remain unchanged
C) remain unchanged; remain unchanged
D) remain unchanged; increase

Question

Quizplus · Accepted Answer

Under fixed exchange rates, expansionary fiscal policy increases income due to increased government spending or tax cuts. Under flexible exchange rates, the effect is offset by currency appreciation, leaving income unchanged.

According to the Mundell-Fleming Model, Under Fixed Exchange Rates Expansionary