In a fixed exchange rate regime,assuming perfect capital mobility,if China increases government spending to stimulate the economy,which of the following would happen in China?
A) Capital account deficit
B) A decrease in money supply
C) Official settlement surplus
D) A decrease in domestic output

Question

Quizplus · Accepted Answer

In a fixed exchange rate regime with perfect capital mobility, increased government spending leads to higher interest rates, attracting foreign capital and causing an official settlement surplus as the central bank buys foreign currency to maintain the fixed exchange rate.

In a Fixed Exchange Rate Regime,assuming Perfect Capital Mobility,if China