Economics · Macroeconomics
Under the Mundell-Fleming model with perfect capital mobility, which of the following statements is NOT correct regarding the effectiveness of monetary and fiscal policies?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Under a floating exchange rate, monetary expansion leads to currency depreciation, increasing net exports and output.
- 2Under a fixed exchange rate, fiscal policy is highly effective in changing output.
- 3Under a fixed exchange rate, the central bank can successfully run an independent monetary policy.✓
- 4Under a fixed exchange rate, monetary policy is powerless to affect output.
Correct answer
Under a fixed exchange rate, the central bank can successfully run an independent monetary policy.
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