With fixed exchange rates,perfect asset substitutability,and perfect capital mobility
A)fiscal policy is ineffective.
B)monetary policy is ineffective.
C)both fiscal and monetary policy are effective.
D)both fiscal and monetary policy are ineffective.

Question

Quizplus · Accepted Answer

With fixed exchange rates, perfect asset substitutability, and perfect capital mobility, monetary policy is ineffective because any changes in interest rates in one country will be immediately offset by capital flows. Fiscal policy can have some limited effectiveness, but it is also constrained by the fixed exchange rate regime.

With Fixed Exchange Rates,perfect Asset Substitutability,and Perfect Capital Mobility