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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Definitions:

Volcanic Blocks

Large chunks of solid rock ejected from a volcano during an eruption, distinct from smaller pyroclastic materials.

Pyroclastic Eruption

An explosive volcanic event characterized by the ejection of magma converted into ash, lapilli, and volcanic bombs.

Mount Pelée

A notorious volcano located on the island of Martinique, best known for its devastating eruption in 1902.

Pyroclastic Flows

Fast-moving currents of hot gas and volcanic materials that flow down the sides of a volcano during an eruption.