Under a Fixed Exchange Rate System,a Neutral Fiscal Policy,and Perfect

question 196

Multiple Choice

Under a fixed exchange rate system,a neutral fiscal policy,and perfect capital mobility,a contractionary monetary policy is ineffective because the:

• A) Fed's attempt to reduce money supply will be offset by an inflow of gold.
• B) Fed's attempt to reduce money supply raises interest rates;capital flows into the United States from other countries,and the American money supply increases.
• C) capital account is unaffected by the Fed's actions.
• D) Fed's attempt to reduce money supply reduces interest rates;capital flows out of the United States,and the U.S.money supply increases.

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