Fiscal Policy and Currency Appreciation
Suppose a country’s expansionary fiscal policy results in the appreciation of its currency. Which of the following is the most direct cause of this currency appreciation?
A
A simultaneous decrease in domestic aggregate demand that lowers overall price levels and reduces currency value.
B
An increase in domestic interest rates driven by higher government spending, which attracts foreign capital inflows.
C
A significant depreciation of the domestic currency that boosts export demand and therefore appreciates the currency.
D
A reduction in net exports due to lower import prices, which has little to do with domestic interest rate movements.
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