Why is fiscal policy considered ineffective under floating exchange rate systems when there is fiscal expansion?

Multiple choice question for Macroeconomic Issues and Analysis. Select an option, then review the explanation below.

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It limits the amount of imported goodsIt decreases government spending on public servicesIt leads to a reduction in exportsIt helps lower the government’s budget deficit

Explanation

Under floating exchange rates, fiscal expansion tends to appreciate the domestic currency, making exports more expensive and thereby reducing export levels.

Practice related questions from the same subject.

1.Which of the following is NOT considered an advantage of the single market?
2.Within the European Exchange Rate Mechanism (ERM), each member country maintained a fixed exchange rate, and together the group ________ in relation to other countries worldwide?
3.In a country with a floating exchange rate system, what is the likely effect on its currency if its inflation rate exceeds that of its trading partners?
4.In a floating exchange rate system, how do expectations of rising interest rates typically affect the currency's exchange rate?
5.How does a fixed exchange rate combined with full capital mobility affect the effectiveness of monetary policy?

Why is fiscal policy considered ineffective under floating exchange rate systems when there is fiscal expansion?

Explanation

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