Quick question: expansionary fiscal will stimulate ebonics growth and raise real interest rate.
in financial account it will attract more capital and it’s currency appreciate
in curry account, demand increase thus it has to import more, thus currency will deprecite
So what is short term and long term effect? I have always thought that short term currency will depreciteSo and long term it will appreciate . Am I correct?
I’m not sure but it could be the conflicting concepts of real interest rates going up simultaneously with inflation. Currency appreciates, short-run effect dominates. Normally inflation means currency depreciates, so maybe that is the longer-term effect once the immediate effects of the expansionary policy has waned.
The nett effect is domestic currency appreciation for a fiscal expansion
A monetary exapsion would lead to a currency depreciation