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

Question

Quizplus · Accepted Answer

Contractionary fiscal policy reduces inflation by decreasing aggregate demand, while expansionary monetary policy can help offset the negative impact on output and employment, maintaining the fixed exchange rate by attracting capital inflows to balance the payments surplus.

According to the Assignment Rule, Which of the Following Policy