The IS/LM/BP analysis suggests that, under flexible exchange rates,

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Under flexible exchange rates, expansionary fiscal policy can cause either depreciation or appreciation of the home currency. This is because an increase in government spending may lead to higher interest rates and a demand for the domestic currency, causing its value to appreciate. On the other hand, an increase in government spending may also stimulate domestic demand for imports, leading to an increase in demand for foreign currency and depreciation of the home currency. Therefore, the answer is C. A is incorrect as monetary policy can still be effective under flexible exchange rates, but it may work differently than under fixed exchange rates. B is incorrect as staying on the LM curve depends on the factors affecting the demand and supply of money and goods in the economy, and may not necessarily be related to exchange rate flexibility. D is incorrect as expansionary fiscal policy may lead to an increase in national income depending on various economic factors.

The IS/LM/BP Analysis Suggests That, Under Flexible Exchange Rates