Economics · Macroeconomics
According to the Mundell-Fleming model, which of the following statements is NOT correct regarding the macroeconomic effectiveness of policies under perfect capital mobility?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Under a floating exchange rate regime, a monetary expansion leads to currency depreciation, net export growth, and increased output.
- 2Under a fixed exchange rate regime, fiscal policy is highly effective in altering aggregate output.
- 3Under a fixed exchange rate regime, the central bank maintains absolute independence in running domestic monetary policy.✓
- 4Under a fixed exchange rate regime, monetary policy is completely powerless to affect aggregate output.
Correct answer
Under a fixed exchange rate regime, the central bank maintains absolute independence in running domestic monetary policy.
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