Which one of the following best describes the net export effect associated with an expansionary Canadian fiscal policy?
A)domestic interest rate falls, foreign demand for dollars rises, dollar appreciates, and net exports increase.
B)domestic interest rate falls, foreign demand for dollars rises, dollar appreciates, and net exports fall.
C)domestic interest rate rises, foreign demand for dollars falls, dollar depreciates, and net exports increase.
D)domestic interest rate rises, foreign demand for dollars increases, dollar appreciates, and net exports decline.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy can lead to higher domestic interest rates, attracting foreign capital, increasing demand for the Canadian dollar, causing it to appreciate, and making exports more expensive, thus reducing net exports.

Which One of the Following Best Describes the Net Export