In a fixed exchange rate regime,which of the following policies could lead to a greater trade deficit and leave aggregate demand constant?
A)devalue the currency.
B)increase government spending.
C)decrease government spending.
D)decrease government spending and devalue the currency.
E)increase government spending and revalue the currency.

Question

Quizplus · Accepted Answer

Increasing government spending raises aggregate demand, while revaluing the currency makes exports more expensive and imports cheaper, potentially increasing the trade deficit. The two effects can offset each other, leaving aggregate demand constant.

In a Fixed Exchange Rate Regime,which of the Following Policies