Expansionary Fiscal Policy and Net Exports
In a small open economy with flexible exchange rates, what is the most likely effect of an expansionary fiscal policy on net exports?
A
Net exports would increase because expansionary fiscal policy typically boosts overall economic growth stimulating export activities.
B
Net exports would decrease due to an appreciation of domestic currency making exports more expensive internationally.
C
Net exports would increase due to a depreciation of domestic currency making imports more expensive domestically.
D
Net exports would remain unchanged as fiscal policy affects only domestic output and employment levels.
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