Macroeconomic Policy under Floating and Fixed Exchange Rates

Should we use government spending or the money supply to lift the economy – and does the answer switch if our currency floats or is pegged to another? A simple open‑economy model shows that the exchange‑rate rule turns the usual logic on its head. Monetary policy loses its punch under a peg, while fiscal spending becomes a heavyweight; the opposite is true when the exchange rate is free to move.