According to the assignment rule, which of the following policy mixes is appropriate for a country with high inflation, a balance of payments deficit, and fixed exchange rates?
A)Expansionary fiscal policy and expansionary monetary policy
B)Expansionary fiscal policy and contractionary monetary policy
C)Contractionary fiscal policy and expansionary monetary policy
D)Contractionary fiscal policy and contractionary monetary policy

Question

Quizplus · Accepted Answer

For a country experiencing high inflation and a balance of payments deficit under a fixed exchange rate system, the appropriate policy mix would be contractionary fiscal policy and contractionary monetary policy. Contractionary policies help reduce inflation by decreasing spending and investment, and they can also help improve the balance of payments by reducing imports.

According to the Assignment Rule, Which of the Following Policy