"Under flexible exchange rate system,fiscal policy is ineffective,but monetary policy is effective in changing domestic income."

Question

Quizplus · Accepted Answer

Under a flexible exchange rate system, the exchange rate adjusts to changes in supply and demand in the foreign exchange market, making fiscal policy ineffective in changing domestic income because changes in government spending and taxation cannot affect the exchange rate. However, monetary policy can still be effective in changing domestic income by influencing interest rates and the money supply.

"Under Flexible Exchange Rate System,fiscal Policy Is Ineffective,but Monetary Policy