Final answer:
Expansionary fiscal policy leads to higher interest rates and the appreciation of the dollar, while expansionary monetary policy results in lower interest rates and the depreciation of the dollar; the correct answer is B) rise; fall.
Step-by-step explanation:
Under a flexible exchange rate system with perfect capital mobility, an expansionary fiscal policy typically leads to a rise in the domestic interest rates as the government competes for funds with the private sector.
Higher interest rates attract foreign capital, leading to an increased demand for the domestic currency, which appreciates its value. Therefore, expansionary fiscal policy causes the value of the dollar to rise.
On the other hand, expansionary monetary policy involves the central bank increasing the money supply, which usually results in lower interest rates.
Lower interest rates make the domestic currency less attractive to foreign investors, diminishing its demand and leading to a depreciation. Thus, expansionary monetary policy causes the value of the dollar to fall. The correct answer is therefore 'B) rise; fall'.