True or False: A fixed exchange rate in a small open economy magnifies the impact of fiscal policy on aggregat

Question

True or False: A fixed exchange rate in a small open economy magnifies the impact of fiscal policy on aggregate demand.

True

False

Answer 1

False - fiscal policy works usual way in this case - while monetary policy under fixed exchange rate is ineffective.

Answer 2

Neither..  A Fixed Exchange rate means you have no fiscal policy. In fact, you are handing over your fiscal policy to whomever you've fixed your currency to. Because its their fiscal policy that will dictate the outcome of your nation.  For instance, the Bahamas has a fixed exchange rate with the USD. They've technically handed over their Central Bank function to the US Federal Reserve. If the USD goes down in value, so will the bahamian dollar. And vice versa.

Answer 3

false and its a bad Idea