In the New Keynesian open economy model,if the exchange rate is fixed
A) fiscal policy and monetary policy are powerless.
B) fiscal policy is an effective stabilization tool.
C) a change in current total factor productivity increases output.
D) monetary policy is an effective stabilization tool.

Question

Quizplus · Accepted Answer

In a fixed exchange rate regime, monetary policy is constrained as the central bank must maintain the exchange rate, leaving fiscal policy as the primary tool for economic stabilization.

In the New Keynesian Open Economy Model,if the Exchange Rate