In the Mundell Analysis in Which, in a Situation of Fixed

question 21

Multiple Choice

In the Mundell analysis in which, in a situation of fixed exchange rates, a country is using monetary and fiscal policy to attain "external balance" (i.e., balance-of-payments equilibrium) and "internal balance" (i.e., full employment without inflation) , the country __________. In this context, if the country has a balance-of-payments surplus at the same time that it has inflation, the country should engage in __________.

• A) should assign monetary policy to the attainment of internal balance and fiscal policy To the attainment of external balance; expansionary ("easy") monetary policy and contractionary ("tight") fiscal policy
• B) should assign monetary policy to the attainment of internal balance and fiscal policy to the attainment of external balance; contractionary ("tight") monetary policy And expansionary ("easy") fiscal policy
• C) should assign monetary policy to the attainment of external balance and fiscal policy To the attainment of internal balance; expansionary ("easy") monetary policy And contractionary ("tight") fiscal policy
• D) should assign monetary policy to the attainment of external balance and fiscal policy To the attainment of internal balance; contractionary ("tight") monetary policy And expansionary ("easy") fiscal policy

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Definitions:

Domestic Consumption

The total amount of goods and services consumed by the residents of a country.

Domestic Production

The total value of all goods and services produced within a country's borders over a specified period of time.

Protection

Measures taken by a government to safeguard its industries from overseas competition, often through tariffs, quotas, or other restrictions.

Domestic Price

The price of goods or services within a country, which may differ from international prices due to tariffs, subsidies, or other domestic policies.