Which Set of Events Would Best Explain the Effects of a Contractionary

question 4

Multiple Choice

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

• A)It decreases domestic interest rates, causing the dollar to appreciate and net exports to decrease.
• B)It decreases domestic interest rates, causing the dollar to depreciate and net exports to increase.
• C)It decreases domestic interest rates, causing the dollar to depreciate and net exports to decrease.
• D)It increases domestic interest rates, causing the dollar to appreciate and net exports to decrease.

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Definitions:

Indicator Variable

A binary variable with values of 0 or 1, used in statistics and econometrics to represent a categorical outcome or presence/absence of a characteristic.

Categorical

Pertaining to data that can be divided into specific groups or categories that are generally qualitative in nature.

Natural Log

The logarithm to the base e (approx. 2.718), used in mathematics and sciences to model growth processes.

Exponential

Pertaining to mathematical functions or models that exhibit growth or decay at a constant rate, often used in compound interest and population growth models.