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Expansionary fiscal policies also raise interest rates and make the currency appreciate. Higher interests attract more capital inflow from abroad. As the currency appreciates, exports
Expansionary fiscal policies also raise interest rates and make the currency appreciate. Higher interests attract more capital inflow from abroad. As the currency appreciates, exports become more expensive, and with time, demand for exports will falter, possibly narrowing or even worsening the net exports position. Hence, international capital flows make fiscal policy more powerful than in a closed economy. True False
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