If There Is an Increase in Foreign Financial Investment in the United

question 36

Multiple Choice

If there is an increase in foreign financial investment in the United States as the result of large U.S. budget deficits and attractive interest yields,

• A) fiscal policy will be more expansionary since there will be no crowding-out effect.
• B) fiscal policy will be more expansionary since U.S. residents will increase their savings, so they can repay the foreigners in the future.
• C) foreign exchange value of the dollar will depreciate, which will lead to an increase in net exports and aggregate demand.
• D) foreign exchange value of the dollar will appreciate, which will lead to a decrease in net exports and aggregate demand.

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