Expansionary monetary and fiscal policies may be optimal for internal balance but might create:
A) an overvalued exchange rate.
B) a balance of payments surplus.
C) low inflation and a trade surplus.
D) low unemployment and a trade surplus.
E) exchange rate appreciaton.

Question

Quizplus · Accepted Answer

Expansionary monetary and fiscal policies can lead to an overvalued exchange rate by increasing domestic demand and potentially causing inflation, which can make domestic goods more expensive relative to foreign goods, thus affecting the exchange rate.

Expansionary Monetary and Fiscal Policies May Be Optimal for Internal