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      Question

      What is the short-run effect of expansionary fiscal

      policy under a flexible exchange rate regime with perfect capital mobility?
      A Increase in output and income, decrease in interest rates, depreciation of domestic currency, and increase in net exports Correct Answer Incorrect Answer
      B Increase in output and income, increase in interest rates, appreciation of domestic currency, and decrease in net exports Correct Answer Incorrect Answer
      C Decrease in output and income, decrease in interest rates, depreciation of domestic currency, and increase in net exports Correct Answer Incorrect Answer
      D Increase in output and income, decrease in interest rates, appreciation of domestic currency, and increase in net exports Correct Answer Incorrect Answer

      Solution

      The correct answer is B

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