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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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