the government of atlantis engaged in expansionary fiscal policy that resulted in an increase in the price…
the government of atlantis engaged in expansionary fiscal policy that resulted in an increase in the price level. what will be the impact of the increase in the price level in atlantis on the foreign exchange market for the atlantian dollar and the exchange rate for the atlantian dollar? choose 1 answer: a the demand for the atlantian dollar decreases; the atlantian dollar depreciates b the demand for the atlantian dollar increases; the atlantian dollar appreciates c the supply of the atlantian dollar decreases; the atlantian dollar appreciates d an increase in the price level in atlantis will have no impact on the foreign exchange market for the atlantian dollar e the supply of the atlantian dollar decreases; the atlantian dollar depreciates
Answer
Brief Explanations:
When the price level in Atlantis increases due to expansionary fiscal - policy, Atlantis' goods and services become relatively more expensive compared to foreign goods and services. Foreigners will demand fewer Atlantis - produced goods, so they will demand fewer Atlantian dollars to buy those goods. As the demand for the Atlantian dollar decreases in the foreign - exchange market, the Atlantian dollar will depreciate according to the principles of supply and demand in the foreign - exchange market.
Answer:
A. The demand for the Atlantian dollar decreases; the Atlantian dollar depreciates