Question

explain and show with a diagram the effects of an expansionary fiscal policy on the real exchange rate and net export

Answer 1

--> fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. When a country adopts expansionary fiscal policy,it lowers taxes and increases spendings. When a country adopts contractionary fiscal policy, it raises taxes and reduces spendings.

-->When the government spends more or decides to cut your tax bill, this ultimately leads to increased demand, which pushes the overall price of goods and services higher. As the prices of goods increases, this also makes exports of our goods to other countries more expensive and imports more attractive. This leads to higher demand for foreign currency to buy goods and lower demand for domestic currency. This lowers the exchange rate.