A-LevelEconomicsMacroeconomic Policy / Exchange RatesOct/Nov 2021Paper 1 Q301 Mark
Country X is an open economy with a floating exchange rate. It changes to a fixed exchange rate. Which combination of policy changes would be most effective in reducing inflation?
Afiscal policy: higher direct taxes; new fixed exchange rate: above purchasing power parity
Bfiscal policy: higher direct taxes; new fixed exchange rate: below purchasing power parity
Cfiscal policy: higher indirect taxes; new fixed exchange rate: above purchasing power parity
Dfiscal policy: higher indirect taxes; new fixed exchange rate: below purchasing power parity
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The correct answer is A. This question tests the candidate's understanding of macroeconomic policy / exchange rates within the Economicssyllabus. The examiner's mark scheme requires...
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