Home has a fixed exchange-rate. If Home’s government wishes to slow down the economy by decreasing...
Home has a fixed exchange-rate. If Home’s government wishes to slow down the economy by decreasing a short-run government spending, it must also reduce the money policy. Why?
Homework Answers
In order to make the government spending less, the availability of currency should be less in a fixed exchange rate system because if the currency is less than you will get less dollars for that currency as a result of which you would be able to limit your spending where the exchange rate remains constantand this can slow down and that is the reason why it can be mentioned that in a fixed exchange rate system, government spending can be reduced by reducing the money policy on the whole in the short run.
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