Fiscal expansion under fixed exchange rates will have what temporary effect?
A) the money supply will decrease
B) output will decrease
C) the exchange rate will increase
D) the exchange rate will decrease
E) there will be no effect

Question

Quizplus · Accepted Answer

Fiscal expansion will increase demand for domestic goods and services, leading to higher prices and inflation. This will cause the currency to depreciate in value, leading to a temporary decrease in the exchange rate.

Fiscal Expansion Under Fixed Exchange Rates Will Have What Temporary