Under a fixed exchange rate system, an expansionary policy would tend to worsen the current account.

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, an expansionary policy would lead to an increase in aggregate demand, which would lead to increased imports and a decrease in exports. This would result in a higher current account deficit or a lower current account surplus, thus worsening the current account balance.

Under a Fixed Exchange Rate System, an Expansionary Policy Would