Why a worldwide coordinated expansionary fiscal policy can 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

A worldwide coordinated expansionary fiscal policy would involve governments increasing their spending and reducing taxes simultaneously in the global economy. This would lead to a higher demand for goods and services, causing a rise in output levels and employment. If only one or a few countries undertake this policy, it would cause a depreciation of their currency relative to others, which could create trade imbalances and potentially harm the global economy. However, if many countries worldwide coordinate this policy, it would cause an increase in overall demand, and there would be minimal exchange rate appreciation or depreciation.

Why a Worldwide Coordinated Expansionary Fiscal Policy Can Be an Effective