Under _________ exchange rates a fiscal expansion that pushes up interest rates crowds our net exports
Through an appreciation of the domestic currency in addition to crowding out domestic consumption and investment.
A) flexible
B) fixed
C) dirty floating
D) managed

Question

Quizplus · Accepted Answer

Under flexible exchange rates, a fiscal expansion that increases interest rates can lead to an appreciation of the domestic currency. This appreciation makes exports more expensive and imports cheaper, thus reducing net exports. This effect is in addition to the crowding out of domestic consumption and investment that can occur due to higher interest rates.

Under _________ Exchange Rates a Fiscal Expansion That Pushes Up