In the short run
A) monetary expansion causes the CA to increase and fiscal expansion causes the CA to decrease.
B) monetary expansion causes the CA to decrease and fiscal expansion causes the CA to decrease.
C) monetary expansion causes the CA to increase and fiscal expansion causes the CA to increase.
D) monetary expansion causes the CA to decrease and fiscal expansion causes the CA to increase.
E) monetary expansion causes the CA to increase and the effects of fiscal expansion are ambiguous.

Question

Quizplus · Accepted Answer

In the short run, monetary expansion typically leads to a depreciation of the currency, making exports cheaper and imports more expensive, thus increasing the current account (CA). Fiscal expansion often increases domestic demand, which can lead to higher imports and a decrease in the CA.

In the Short Run