If international capital flows are highly responsive to interest rates, expansionary fiscal policy will:
A)lead to financial account surpluses.
B)lead to financial account deficits.
C)be totally ineffective.
D)lead to current account surpluses.

Question

Quizplus · Accepted Answer

When international capital flows are highly responsive to interest rates, expansionary fiscal policy, which typically raises interest rates, will attract foreign capital, leading to financial account surpluses.

If International Capital Flows Are Highly Responsive to Interest Rates