Question

Which of the following statements is NOT CORRECT in the context of an Open Economy IS-LM Model under Floating Exchange Rate (with fixed price) and Perfect Capital Mobility?

• A. An expansionary fiscal policy would appreciate the domestic currency value
• B. An expansionary monetary policy would depreciate the domestic currency value
• C. Exchange rate has significant impact on determining the equilibrium level of income and employment
• D. Monetary policy is fully effective in determining income and employment whereas fiscal policy is ineffective

Answer 1

Answer: (C)

Exchange rate has significant impact on determining the equilibrium level of income and employment

Answer 2

The correct option is (C): Exchange rate has significant impact on determining the equilibrium level of income and employment