APFIVE Fiscal Policy and Flexible Exchange Rates
Country X and Country Y both experience recessions. Country X implements expansionary fiscal policy while Country Y maintains a balanced budget. Assuming both have flexible exchange rates, what is the likely outcome?
A
X’s currency appreciates relative to Y’s currency
B
X’s currency depreciates relative to Y’s currency
C
Both currencies maintain the same exchange rate
D
Both currencies depreciate against other world currencies
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