Fiscal policy is highly effective when capital is not mobile and the country has fixed exchange-rates.

Question

Quizplus · Accepted Answer

Fiscal policy may be less effective when capital is mobile, as investors can move their money to countries with better fiscal policies, causing a decrease in demand for the country's currency and potentially decreasing the effectiveness of fiscal policy. Additionally, fixed exchange rates can limit the ability of a country to adjust to changing economic conditions, potentially reducing the effectiveness of fiscal policy.

Fiscal Policy Is Highly Effective When Capital Is Not Mobile