The main international repercussion of either a fiscal expansion or monetary contraction is to
A)raise interest rates and the exchange rate, thereby crowding out net exports.
B)raise interest rates and lower the exchange rate, thereby crowding in net exports.
C)lower interest rates and the exchange rate, thereby crowding in net exports.
D)lower interest rates and raise the exchange rate, thereby crowding out net exports.

Question

Quizplus · Accepted Answer

A fiscal expansion or monetary contraction typically leads to higher interest rates. Higher interest rates attract foreign capital, increasing demand for the domestic currency and thus appreciating its value (raising the exchange rate). This makes domestic goods more expensive abroad, reducing exports and increasing imports, which is known as crowding out net exports.

The Main International Repercussion of Either a Fiscal Expansion or Monetary