As i saw in SS4, both expansionary monetary and fiscal policy lead to inflation, and thus a decrease in net exports (deficit in the current account). Why does that hold? Should inflation cause depreciation in the country’s currency and increase in net exports? Really got lost here, thanks for any help!
inflation doesnt really have much to do with the strenth of the dollar against another countrys currency. all else equal, inflation is going to drive up the prices of US goods and therefore make it more expensive for other countries to purchase our goods, with is why a a decrease in net exports.
got it…thanks!!