A fiscal expansion in the UK ?
Correct answer: C. tends to appreciate the pound sterling
- A. has no predictable effect on the price of the pound sterling?
- B. does not affect the price of the pound sterling
- C. tends to appreciate the pound sterling
- D. tends to depreciate the pound sterling
Explanation
Under a floating exchange-rate model, fiscal expansion can raise interest rates and attract foreign capital, increasing demand for sterling and tending to appreciate it. The exact outcome can depend on monetary policy and other conditions, but option c is the standard result tested here.
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