Question

if the country plans to reduce unemployment rate during this period (with fixed exchange rate implemented), assuming perfect capital mobility presence in the market, would you recommend the government use monetary policy or fiscal policy? explain the reasons behind your recommendation with the aid of diagrams.

Answer 1

If the country plans to reduce unemployment rate during this period with fixed exchange rate implemented, assuming perfect capital mobility presence in the market, I would recommend the government to use expansionary monetary policy to improve economic activity and employment.