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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 Correct Answer Incorrect Answer
B An expansionary monetary policy would depreciate the domestic currency value Correct Answer Incorrect Answer
C Exchange rate has significant impact on determining the equilibrium level of income and employment Correct Answer Incorrect Answer
D Monetary policy is fully effective in determining income and employment whereas fiscal policy is ineffective Correct Answer Incorrect Answer
E None of these Correct Answer Incorrect Answer

Solution

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

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