According to the assignment rule, which of the following policy mixes is appropriate for a country with high unemployment, a balance of payments deficit, 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

With high unemployment and a balance of payments deficit, the economy needs expansionary fiscal policy to increase demand and generate employment, and fixed exchange rates need contractionary monetary policy to avoid creating an inflationary pressure by increasing the money supply. Therefore, expansionary fiscal policy and contractionary monetary policy are the most appropriate policy mix in this case.

According to the Assignment Rule, Which of the Following Policy