In the short run, ___________ is a powerful tool under fixed exchange rates.
A) incomes policy
B) monetary policy
C) fiscal policy
D) supply-side policy

Question

Quizplus · Accepted Answer

In the short run, fiscal policy is a powerful tool under fixed exchange rates because it can directly influence demand without affecting the exchange rate, which is controlled by the central bank. Monetary policy effectiveness is limited as it would require changes in interest rates that could lead to capital flows affecting the fixed exchange rate.

In the Short Run, ___________ Is a Powerful Tool Under