Suppose that Brunei has a floating exchange rate and experiences high capital mobility.Assume that Brunei is suffering from a recession and it also has a trade deficit.Other things equal, which of the following policy options is likely to achieve overall balance for Brunei?
A) expansionary monetary policy
B) contractionary monetary policy
C) expansionary fiscal policy
D) contractionary fiscal policy

Question

Quizplus · Accepted Answer

Expansionary monetary policy can help Brunei combat recession by lowering interest rates, which stimulates investment and consumption. Additionally, with high capital mobility, lower interest rates may lead to a depreciation of the currency, potentially improving the trade deficit by making exports cheaper and imports more expensive.

Suppose That Brunei Has a Floating Exchange Rate and Experiences