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In a fixed exchange rate system, which of the following policies could be implemented to increase...

In a fixed exchange rate system, which of the following policies could be implemented to increase the trade deficit and leave the IS curve unchanged?

(The answer given is to increase the expense of the government and to revalue the currency, but I don't understand this)

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Answer #1

I think the question itself has a misleading information.Fixed Exchange rate has no relation with increase in government expenditures and unchanged IS curve simultaneously because increase in G will shift the IS curve.Monetary policy will have no effect in fixed exchange regime and money policy is completely ineffective.

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