Which of These Is Likely to Occur When Contractionary Policy

question 69

Multiple Choice

Which of these is likely to occur when contractionary policy is implemented under a fixed exchange rate system?

• A) Net transfers rise.
• B) The capital account becomes positive.
• C) The trade balance worsens.
• D) Imports drop and exports rise.

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Definitions:

Domestic Investment

The total amount of money invested in the resources within a country's borders, including but not limited to businesses, infrastructure, and technology.

Open-Economy Macroeconomic Model

A framework used to analyze economies that engage in international trade of goods, services, and financial assets.

Tariff

A tax levied on imported and, less commonly, exported goods, used to regulate trade by increasing the price of foreign products to encourage or protect domestic industry.

Real Exchange Rate

The rate at which a person can trade goods and services of one country for those of another, adjusted for inflation.