Given an open economy with high capital mobility, which of the following statements is NOT true?
A) Fiscal policy is strengthened under fixed exchange rates.
B) Monetary policy is weakened under fixed exchange rates.
C) Monetary policy is strengthened under floating exchange rates.
D) Fiscal policy is strengthened under floating exchange rates.

Question

Quizplus · Accepted Answer

In an open economy with high capital mobility, fiscal policy is generally less effective under floating exchange rates because exchange rate adjustments can offset the impact of fiscal expansions or contractions. Under fixed exchange rates, fiscal policy is more effective because the exchange rate does not adjust to counteract fiscal policy moves, allowing for a more direct impact on the economy.

Given an Open Economy with High Capital Mobility, Which of the Following