Fiscal policy is weak under floating exchanges rates as fiscal expansion ?
Correct answer: C. crowds out exports
- A. crowds out imports
- B. crowds out public consumption
- C. crowds out exports
- D. reduces the budget deficit
Explanation
Fiscal expansion under floating exchange rates can raise interest rates, attract capital inflows and appreciate the currency. The stronger currency makes exports less competitive, so exports are crowded out.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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