If a country tries to stimulate the economy with fiscal policy, the effects will be exchange rate
A)depreciation, lower interest rates, and a small increase in aggregate demand.
B)depreciation, higher interest rates, and a small decrease in aggregate demand.
C)appreciation, lower interest rates, and a small increase in aggregate demand.
D)appreciation, higher interest rates, and a small increase in aggregate demand.

Question

Quizplus · Accepted Answer

When a country uses fiscal policy to stimulate the economy, typically by increasing government spending or cutting taxes, it leads to higher aggregate demand. This increased demand can lead to higher interest rates as the government competes for funds in the financial markets. Higher interest rates attract foreign capital, leading to an appreciation of the country's currency.

If a Country Tries to Stimulate the Economy with Fiscal