When exchange rates are flexible, expansionary fiscal policy indirectly leads to a capital inflow and a current account surplus.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy typically leads to higher interest rates, attracting capital inflow but also appreciating the domestic currency, which makes exports more expensive and imports cheaper, potentially leading to a current account deficit, not a surplus.

When Exchange Rates Are Flexible, Expansionary Fiscal Policy Indirectly Leads