DQuestion 47 1 pts Fiscal Expansion under a fixed exchange has what effect(s) on
ID: 1112697 • Letter: D
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DQuestion 47 1 pts Fiscal Expansion under a fixed exchange has what effect(s) on the economy: O the exchange rate decreases initially but then returns to its original point. O the money supply decreases O output decreases O output is unchanged. o the exchange rate increases. D Question 48 1 pts When a country's currency is devalued: O output decreases and the money supply increases. O output increases and the money supply decreases. O the money supply decreases. O both the output and the money supply increases. O output decreases. DQuestion 49 1 pts A balance of payments crises under fixed exchange rates occurs when O a country runs out of foreign reserves O marginal returns on foreign exchange investments approach zero O a country is in a liquidity trap. O exports and imports expand beyond some point. O forward currency markets undergo high volatilityExplanation / Answer
47)E. fiscal expansion will increase interest rate and exchange rate appreciates because foreign investor demands more domestic currency because expansionary fiscal policy increases interest rate.
48)ans is B. when currency devalue because of increase in money supply but after devaluation there is increase in net export. Thus real output imcreases and money supply decreases.
49)A. Bop crises when a country runs out of foreign reserves.
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