Given fixed exchange rates,assume Mexico initiates contractionary monetary and fiscal policies to combat inflation.These policies will also:
A) Reduce a balance-of-payments surplus
B) Reduce a balance-of-payments deficit
C) Increases both imports and exports
D) Decrease both imports and exports

Question

Quizplus · Accepted Answer

Contractionary monetary and fiscal policies typically reduce domestic demand, which can lead to a decrease in imports. With fixed exchange rates, this can help reduce a balance-of-payments deficit by improving the trade balance.

Given Fixed Exchange Rates,assume Mexico Initiates Contractionary Monetary and Fiscal