BCB Analista Economia E Finanças Practice Questions - Banco Central Do Brasil Analista - Economia E Finanças Exam

Fiscal policy is fully effective because the central bank must expand the domestic money supply to maintain the fixed exchange rate peg against appreciation pressure. Monetary policy is fully effective because autonomous open market purchases permanently lower domestic interest rates without altering foreign reserves. Trade tariffs are fully effective because they eliminate capital mobility and isolate the central bank from foreign exchange interventions. Neither fiscal nor monetary policy can affect output due to the absolute validity of the Ricardian Equivalence proposition.