Due to macroeconomics interdependence between large countries, the effect of a permanent fiscal expansion by Home is as follows: Home output
A) falls, Home's currency appreciates, Foreign output rises.
B) rises, Home's currency appreciates, Foreign output rises.
C) rises, Home's currency depreciates, Foreign output rises.
D) rises, Home's currency appreciates, Foreign output decreases.
E) falls, Homes currency depreciates, Foreign output rises.

Question

Quizplus · Accepted Answer

A permanent fiscal expansion by Home typically leads to an increase in Home output due to higher government spending or lower taxes, which stimulates economic activity. This increased demand for Home goods can lead to an appreciation of Home's currency as demand for the currency increases to purchase Home goods. The appreciation of Home's currency makes Foreign goods relatively cheaper, potentially increasing demand for Foreign goods and thus increasing Foreign output.

Due to Macroeconomics Interdependence Between Large Countries, the Effect of a Permanent