When Comparing Monetary and Fiscal Policy Under Fixed and Floating

question 79

Multiple Choice

When comparing monetary and fiscal policy under fixed and floating exchange rate regimes, which of the following statements is FALSE?

• A) In a floating exchange rate regime, an expansionary monetary policy is effective by stimulating spending and by depreciating the currency.
• B) In a floating exchange rate regime, an expansionary fiscal policy is effective by stimulating spending, though there may be crowding-out effects due to higher rates of interest and currency appreciation.
• C) In a fixed exchange rate regime, an expansionary monetary policy is effective by stimulating spending; it has no impact on the currency value or the trade balance.
• D) In a fixed exchange rate regime, an expansionary fiscal policy is effective by stimulating spending, as long as the parallel expansionary monetary policy keeps exchange rates stable.

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Definitions:

Synaptic Cleft

The small gap at a synapse between neurons, across which neurotransmitters move from one neuron to another.

Terminal Buttons

The small knobs at the end of an axon that release chemicals called neurotransmitters into the synapse, thereby transmitting nerve impulses to another nerve cell.

Cell Membrane

The thin, flexible barrier that surrounds cells, controlling the movement of substances in and out of the cell.

Action Potential

A short-lasting event in which the electrical membrane potential of a cell rapidly rises and falls, facilitating neural communication.