A system of fixed exchange rates and high capital mobility strengthens which policy in combating a recession:
A) Expansionary fiscal policy
B) Expansionary monetary policy
C) Contractionary fiscal policy
D) Contractionary monetary policy

Question

Quizplus · Accepted Answer

In a system of fixed exchange rates with high capital mobility, expansionary fiscal policy is more effective because it directly influences aggregate demand through government spending or tax cuts, without being offset by changes in interest rates or exchange rates.

A System of Fixed Exchange Rates and High Capital Mobility