In an Open Economy with Fixed Exchange Rates, Expansionary Fiscal

Multiple Choice

In an open economy with fixed exchange rates, expansionary fiscal policy causes:

A) interest rates to rise and an inflow of foreign capital causing the government to intervene and buy foreign currency.
B) interest rates to fall and an inflow of foreign capital causing the government to intervene and buy foreign currency.
C) interest rates to rise and an outflow of foreign capital causing the government to intervene and sell foreign currency.
D) interest rates to fall and an outflow of foreign capital causing the government to intervene and buy foreign currency.
E) interest rates to remain unchanged with an outflow of foreign capital causing the government to intervene and sell foreign currency.