1. Under a floating exchange rate regime with a high degree of capital mobility, in the...
1. Under a floating exchange rate regime with a high degree of capital mobility, in the short run an expansionary fiscal policy will most likely create pressure on:
a. the domestic currency to appreciate.
b. the domestic currency to depreciate.
c. monetary authorities to revalue the domestic currency.
d. monetary authorities to devalue the domestic currency.
2. Under a floating exchange rate regime with a high degree of capital mobility, a change in the exchange rate value of domestic currency following contractionary fiscal policy is most likely to:
a. improve the current account.
b. decrease the country's holdings of official reserve assets.
c. cause a surplus in the financial account.
d. induce inflow of foreign capital.
Homework Answers
Answer of first question is A option i.e. appreciation of domestic currency
Answer of second question is D option i.e. induce inflow of foreign capital.
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