Fiscal policies are hampered by flexible exchange rate systems.

Name: Fiscal policies are hampered by flexible exchange rate systems.
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Question

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Flexible exchange rate systems can make it difficult for governments to use fiscal policies effectively as changes in the domestic economy may be offset by changes in the exchange rate. For example, expansionary fiscal policy that leads to higher demand for imports may cause the domestic currency to depreciate, which could offset the intended effects of the policy.

Fiscal Policies Are Hampered by Flexible Exchange Rate Systems