Under a Fixed Exchange Rate Regime, an Expansionary Fiscal Policy

Multiple Choice

Under a fixed exchange rate regime, an expansionary fiscal policy would ____ interest rates and GDP, which would cause ____ pressure on the exchange rate, forcing the monetary authority to undertake a(n) ______ monetary policy.

A) raise; downward (appreciation) ; expansionary
B) lower; upward (depreciation) ; contractionary
C) raise; upward (depreciation) ; contractionary
D) lower; downward (appreciation) ; expansionary