Country X has an open economy and uses a floating exchange rate. It then switches to a fixed exchange rate. Which set of policy changes would be the most effective in cutting 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