Which statement is true?

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, by increasing domestic income, can lead to increased imports which may deteriorate the balance of payments (BOP) in the short run. On the other hand, expansionary monetary policy can lead to lower interest rates, which may result in capital outflows and a deterioration of the BOP. Thus, while expansionary fiscal policy might have a mixed or negative effect on the BOP, expansionary monetary policy tends to deteriorate it by affecting capital flows and exchange rates.

Which Statement Is True