Given fixed exchange rates, assume Mexico initiates expansionary monetary and fiscal policies to combat recession.Other things equal, these policies will also
A) increase both imports and exports.
B) increase exports and reduce imports.
C) reduce a balance-of-payments surplus.
D) reduce a balance-of-payments deficit.

Question

Quizplus · Accepted Answer

Expansionary monetary and fiscal policies in Mexico would increase domestic income and demand, leading to increased imports. With fixed exchange rates, the increased demand for foreign currencies to pay for these imports would put pressure on Mexico's balance of payments, reducing any surplus. There's no direct mechanism in this scenario that ensures exports will increase as a result of these policies.

Given Fixed Exchange Rates, Assume Mexico Initiates Expansionary Monetary and Fiscal