Without Considering the Effect That a Change in the Value

question 14

Multiple Choice

Without considering the effect that a change in the value of a currency might have on trade, the net effect of a contractionary fiscal policy is:

• A)ambiguous with respect to the exchange rate, but positive with respect to the trade balance.
• B)ambiguous with respect to the trade balance, but positive with respect to the exchange rate.
• C)negative with respect to the exchange rate and positive with respect to the trade balance.
• D)positive with respect to the exchange rate and negative with respect to the trade balance.

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Definitions:

Solute

Substance that is dissolved in a solvent, forming a solution.

Solvent

Liquid portion of a solution that serves to dissolve a solute.

Solution

Fluid (the solvent) that contains a dissolved solid (the solute).

Tonicity

The ability of a surrounding solution to cause a cell to gain or lose water, depending on the concentration of solutes.