Question

    Which policy tool is more effective under a fixed

    exchange rate regime according to the Mundell-Fleming Model?
    A Monetary policy Correct Answer Incorrect Answer
    B Fiscal policy Correct Answer Incorrect Answer
    C Trade policy Correct Answer Incorrect Answer
    D Exchange rate policy Correct Answer Incorrect Answer

    Solution

    Under a fixed exchange rate regime, fiscal policy is more effective in influencing economic output, because monetary policy is constrained by the need to maintain the fixed exchange rate.

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