A system of floating exchange rates and high capital mobility strengthens which policy in combating a recession?
A) expansionary fiscal policy
B) expansionary monetary policy
C) contractionary fiscal policy
D) contractionary monetary policy

Question

Quizplus · Accepted Answer

A system of floating exchange rates and high capital mobility strengthens expansionary monetary policy in combating a recession. This is because in such a system, monetary policy can be implemented more effectively to stimulate the economy through lower interest rates and increased lending. Fiscal policy may be less effective in this scenario as capital is more easily able to flow across borders, potentially diminishing the impact of government spending and taxation policies.

A System of Floating Exchange Rates and High Capital Mobility