Which of the following statements is (are)correct?
A)Given a fixed exchange rate system,there is an absence of conflicts between internal and external balance goals
B)Under a fixed exchange rate system,potential conflicts arise between the goals of internal balance and external balance
C)Countries may find that expansionary policies,which might be desired in order to reduce the unemployment rate,lead to income levels that are too high to balance the trade account and could lead to balance of payments problems
D)Both a and c
E)Both b and c

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, potential conflicts arise between the goals of internal balance (low unemployment, stable inflation) and external balance (balanced trade account). Expansionary policies aimed at reducing unemployment may lead to higher incomes and therefore higher import demand, which can cause balance of payments problems.

Which of the Following Statements Is (Are)correct