The reason that fiscal policy is ineffective during a recession is that
A)an expansionary fiscal policy will lead to higher interest rates,appreciation of exchange rate,and a reduction in net exports.
B)an expansionary fiscal policy will lead to lower interest rates,depreciation of exchange rate,and an increase in net exports.
C)an expansionary fiscal policy will lead to lower interest rates,appreciation of exchange rate,and a reduction in net exports.
D)an expansionary fiscal policy will lead to higher interest rates,appreciation of exchange rate,and an increase in net exports.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy can lead to higher interest rates due to increased government borrowing, which can crowd out private investment. This can also cause the currency to appreciate, making exports more expensive and reducing net exports, thus limiting the effectiveness of fiscal policy during a recession.

The Reason That Fiscal Policy Is Ineffective During a Recession