Explain How the Net-Export Effect Would Reduce the Effectiveness of Fiscal

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The Answer is If an expansionary fiscal policy brings with it higher interest rates, this could increase the demand for Canadian dollars by foreign investors seeking to earn the higher Canadian returns.This appreciation of the dollar makes Canadian goods and services more expensive to foreigners and foreign imports less expensive to Canadians.The net export category of aggregate demand will be reduced and offset some of the impact of the expansionary fiscal policy.A contractionary fiscal policy would have the opposite effect by causing the Canadian dollar to depreciate and net exports to increase.Again, the desired effect of the fiscal policy is reduced.

Explain How the Net-Export Effect Would Reduce the Effectiveness of Fiscal

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