According to the Mundell-Fleming model under conditions of high capital mobility, the effect of the combination of an expansionary monetary policy and fiscal policy is:

A. domestic currency appreciates.
B. domestic currency depreciates.
C. it is hard to say if the domestic currency will depreciate or appreciate.

Correct Answer: C

An expansionary monetary policy will exert downward pressure on the domestic currency, while an expansionary fiscal policy will exert upward pressure.