Assume we have an economy currently in a recession with a flexible exchange rate system. In order to expand the economy, the central bank should

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In a flexible exchange rate system, the central bank can use expansionary monetary policy to stimulate the economy. This can be done through lowering interest rates, increasing the money supply or purchasing assets. This can encourage borrowing, spending and investment which can increase aggregate demand and lead to economic growth. Expansionary fiscal policy, such as increased government spending or tax cuts, can also be effective in stimulating the economy, but it may lead to inflation or a larger government deficit. Dollarization or imposing trade restrictions are not effective solutions to expanding the economy in a recession.

Assume We Have an Economy Currently in a Recession with a Flexible