Consider an Outside Shock on the Value of the Dollar

question 52

Multiple Choice

Consider an outside shock on the value of the dollar that causes it to depreciate. The Fed could defend the dollar by

• A) increasing the money supply thereby lowering the LM curve and driving the interest rate up.
• B) increasing government spending thereby raising the IS curve and driving the interest rate up.
• C) reducing the money supply thereby raising the LM curve and driving the interest rate up.
• D) increasing taxes thereby lowering the IS curve and driving the interest rate down.
• E) simultaneously increasing government spending and the money supply so that GDP climbs with a fixed interest rate.

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Definitions:

Interactions

In research, refers to the way that different factors or variables influence each other, often changing the outcome or effects when combined.

Internal Validity

The extent to which a study can prove that a cause-and-effect relationship exists between the tested variables, excluding the influence of external factors.

Nonmonotonic Relationship

A relationship between two variables where the direction of the effect changes over the range of the variable, meaning it can increase then decrease, or vice-versa.

Independent Variables

The factors that are manipulated or varied by researchers in an experiment to determine their effect on the dependent variable.