Question

In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy...

In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, expansionary fiscal policy and contractionary monetary policy would be recommended if a country were faced with

Select one:

a. unemployment and a balance-of-payments deficit.

b. unemployment and a balance-of-payments surplus.

c. inflation and a balance-of-payments deficit.

d. inflation and a balance-of-payments surplus.

Homework Answers

Answer #1

Option A.

  • In the Mundell prescription for monetary and fiscal policy under fixed exchange rates, both fiscal and monetary policies can be used simultaneously at the same time.
  • According to the mundell model, when exapansionary fiscal policy of increasing spending and decreasing tax rates is combined with a contractionary monetary policy of decreasing money supply, then a country can eliminate unemployment and balance of payment deficit together.
  • Higher interest rates and higher spending with lower taxes will balance out the aggregate demand within the economy.
  • This will eliminate the problem of deficits that arise when exchange rates are fixed.
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
According to the Mundell-Fleming model, under fixed exchange rates expansionary fiscal policy causes income to _________,...
According to the Mundell-Fleming model, under fixed exchange rates expansionary fiscal policy causes income to _________, and under flexible exchange rates expansionary fiscal policy causes income to __________. increase; increase increase; remain unchanged remain unchanged; remain unchanged remain unchanged; increase none of the above
Under a system of floating exchange rates and high capital mobility, is monetary policy or fiscal...
Under a system of floating exchange rates and high capital mobility, is monetary policy or fiscal policy better suited for promoting internal balance? Why?
If most major economies are operating under a regime of fixed exchange rates, then a ________...
If most major economies are operating under a regime of fixed exchange rates, then a ________ in a country's balance of payments suggests that the country should ________ its currency. surplus; revalue surplus; devalue deficit; revalue All of these
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary...
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary and fiscal policy.
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary...
In a Mundell-Fleming model with floating exchange rates and perfect capital mobility, discuss effectiveness of monetary and fiscal policy.
Explain whether expansionary fiscal policy and whether expansionary monetary policy will crowd out net exports in...
Explain whether expansionary fiscal policy and whether expansionary monetary policy will crowd out net exports in a flexible exchange rate regime. Assume that the country in question is a small country ( there is perfect capital mobility).
Under the fixed exchange regime, if the country begin with a deficit in its overall balance...
Under the fixed exchange regime, if the country begin with a deficit in its overall balance of payments, to maintain the fixed exchange rate, explain the following How does the central bank intervene through monetary policy to affect the balance of payment? How does the central bank intervene through fiscal policy to affect the balance of payment?
Under the fixed exchange regime, if the country begins with a deficit in its overall balance...
Under the fixed exchange regime, if the country begins with a deficit in its overall balance of payments, to maintain the fixed exchange rate, explain the following a)   How does the central bank intervene through monetary policy to affect the balance of payment? b)   How does the central bank intervene through fiscal policy to affect the balance of payment?
40. Under perfect capital mobility and fixed exchange rates, expansionary _____ is a futile attempt because...
40. Under perfect capital mobility and fixed exchange rates, expansionary _____ is a futile attempt because the _____. a. fiscal policy; LM curve effectively is vertical. b. monetary policy; LM curve effectively is the same as the FE curve. c. fiscal policy; interest rate does not change. d. monetary policy; IS curve will shift to the left. 41. The J curve shows that: a. devaluation is more likely to improve the trade balance in the short-run than in the long-run....
Suppose that in a closed economy the fiscal policy is contractionary and monetary policy is expansionary,...
Suppose that in a closed economy the fiscal policy is contractionary and monetary policy is expansionary, and the central bank is setting the interest rates (LM is horizontal). Graphically analyze this policy mix by using IS-LM diagram. What will be the impact on real income and on interest rate in the short run? What will be the impact of this policy mix on the economy in the medium run? Show by using an AD-AS-LRAS diagram.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT