In a Model with Perfect Capital Mobility and Flexible Exchange

In a model with perfect capital mobility and flexible exchange rates, an increase in government purchases will

A) increase net exports but decrease private domestic investment
B) be totally crowded by a decrease in private domestic investment of the same magnitude
C) crowd out net exports due to an exchange rate appreciation
D) increase net exports due to a depreciation of the exchange rate
E) increase consumption and net exports but decrease private domestic saving

Correct Answer:

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