Under a fixed exchange rate regime, an expansionary fiscal policy would ____ interest rates and GDP, which would cause ____ pressure on the exchange rate, forcing the monetary authority to undertake a(n) ______ monetary policy.
A) raise; downward (appreciation); expansionary
B) lower; upward (depreciation); contractionary
C) raise; upward (depreciation); contractionary
D) lower; downward (appreciation); expansionary
Ans: A) raise; downward (appreciation); expansionary
Economics
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