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.

Ans: 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.

Economics

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