To achieve external balance under a fixed exchange rate system,what policies should be used?

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, monetary policies are not effective in achieving external balance as the exchange rate is fixed. Fiscal policies may be used to affect demand and output, but may not directly impact the exchange rate. The most effective policy for achieving external balance would be expenditure-switching policies, such as import tariffs or quotas, to encourage domestic consumption and reduce imports. Therefore, choice B is the best option.

To Achieve External Balance Under a Fixed Exchange Rate System,what