Why can a worldwide coordinated expansionary fiscal policy be an effective policy in response to recession?
A)A worldwide coordinated expansionary policy would avoid exchange rate depreciation.
B)A worldwide coordinated expansionary policy would avoid exchange rate appreciation.
C)A worldwide coordinated expansionary policy would lead to a higher interest rate.
D)A worldwide coordinated expansionary policy would lead to a lower interest rate.

Question

Quizplus · Accepted Answer

If countries coordinate their fiscal policies to expand their economies simultaneously, it would help avoid exchange rate appreciation, which can harm export-oriented industries. A coordinated policy will also stimulate demand globally and lead to a faster recovery from the recession. Additionally, it will ensure that the expansion is evenly distributed among nations rather than benefiting only a few nations. However, if interest rates increase due to increased government spending, it could counteract the intended effect of the expansionary policy.

Why Can a Worldwide Coordinated Expansionary Fiscal Policy Be an Effective