A system of fixed exchange rates and high capital mobility strengthens which policy in combating a recession?
A) expansionary fiscal policy
B) expansionary monetary policy
C) contractionary fiscal policy
D) contractionary monetary policy

Question

Quizplus · Accepted Answer

Under a system of fixed exchange rates and high capital mobility, expansionary fiscal policy is more effective in combating a recession because it directly stimulates demand without leading to capital outflows or exchange rate adjustments that could counteract the policy's effectiveness.

A System of Fixed Exchange Rates and High Capital Mobility