Explain why in case of a fixed exchange rate regime temporary and permanent fiscal policy changes do not have different effects on output and the exchange rate in the short run as they do in case of a floating exchange rate regime.

Explain why in case of a fixed exchange rate regime temporary and permanent fiscal policy changes do not have different effects on output and the exchange rate in the short run as they do in case of a floating exchange rate regime.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter18: Globalization

Section: Chapter Questions

Problem 13E

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Question

Explain why in case of a fixed exchange rate regime
temporary and permanent fiscal policy changes do not
have different effects on output and the exchange rate
in the short run as they do in case of a floating
exchange rate regime.

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