Suppose a country switches from a flexible to a fixed exchange rate. Which of th

Question

Suppose a country switches from a flexible to a fixed exchange rate. Which of the following will occur as a result of this change?

A:Monetary policy will become a more effective tool for changing output.

B:a given change in government spending will now have a greater effect on output

C:Both fiscal and monetary policy will become more effective in changing GDP.

D:a given change in government spending will now have a smaller effect on output

E:Both fiscal and monetary policy will become completely ineffective in changing GDP.

Explanation / Answer

C:Both fiscal and monetary policy will become more effective in changing GDP

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