Assume That There Is a Simultaneous Increase in Government Spending

question 12

Multiple Choice

Assume that there is a simultaneous increase in government spending and a monetary contraction. In a flexible exchange rate regime, we know with certainty that such a policy mix will cause which of the following?

• A) A decrease in net exports.
• B) An increase in the domestic interest rate.
• C) An increase in the exchange rate.
• D) Both A and B.
• E) Both B and C.

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Definitions:

Cognitive Revolution

The cognitive revolution is a period in the 20th century marked by a shift in psychology from a behaviorist approach to an emphasis on mental processes and how they affect behavior.

Behaviourism

A theory of learning based on the idea that all behaviors are acquired through conditioning.

Introspection

The practice of self-examining one's mental and emotional states.

Generative

Pertaining to the ability of something to produce or create, often used in reference to languages, systems, or processes that can generate a vast array of outputs from a set of rules or principles.