In a Large Open Economy with a Floating Exchange Rate

question 31

Multiple Choice

In a large open economy with a floating exchange rate, such as in the United States, in the short run a monetary contraction:

• A)raises the interest rate and lowers investment and income, but does not affect the exchange rate.
• B)raises the exchange rate and lowers net exports and income, but does not affect the interest rate.
• C)initially raises the exchange rate, causing arbitrageurs to sell dollars and return the money supply to its initial level.
• D)raises the interest rate and lowers investment and income, but also raises the exchange rate and lowers net exports.

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Definitions:

Conformity

The action or behavior of aligning with group norms, values, or expectations, often due to peer pressure or the desire for social acceptance.

Social Loafing

The phenomenon where individuals exert less effort to achieve a goal when they work in a group than when they work alone.

Nominal Groups

A technique involving individuals working independently on idea generation before coming together as a group to discuss and evaluate these ideas.

Brainstorming Teams

Groups specifically formed to generate a wide range of ideas and solutions for specific problems or challenges in a nonjudgmental environment.