Under a fixed exchange rate system, expansionary monetary policy is _____due to changes brought about through the _____ account.
A) hampered; capital
B) hampered; current
C) reinforced; capital
D) reinforced; current

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, expansionary monetary policy is hampered because it leads to capital outflows, which put pressure on the fixed exchange rate, requiring the central bank to sell foreign reserves to maintain the peg, thus offsetting the expansionary effect.

Under a Fixed Exchange Rate System, Expansionary Monetary Policy Is