Given an open economy with high capital mobility, fiscal policy is strengthened under fixed exchange rates.

Question

Quizplus · Accepted Answer

In an open economy with high capital mobility, fiscal policy is more effective under fixed exchange rates because the central bank must intervene in the foreign exchange market to maintain the fixed rate, which often involves adjusting the money supply in a way that reinforces the fiscal expansion or contraction.

Given an Open Economy with High Capital Mobility, Fiscal Policy