Why Is the Multiplier for Contractionary Fiscal Policy Smaller in an Open

question 99

Multiple Choice

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

• A)Contractionary fiscal policy reduces the deficit,which raises the interest rate,which raises the foreign exchange value of the dollar,which increases net exports.
• B)Contractionary fiscal policy increases the deficit,which raises the interest rate,which reduces the foreign exchange value of the dollar,which increases net exports.
• C)Contractionary fiscal policy reduces the deficit,which reduces the interest rate,which reduces the foreign exchange value of the dollar,which increases net exports.
• D)Contractionary fiscal policy reduces the deficit,which reduces the interest rate,which reduces the foreign exchange value of the dollar,which decreases net exports.

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Definitions:

Virginia Company

A joint-stock company chartered by James I of England in 1606 to establish settlements on the coast of North America.

Massachusetts Company

An English stock company chartered in 1629 for the colonization of Massachusetts Bay in New England and played a central role in the settlement of the region by Puritans.

Spanish Empire

Was one of the largest empires in world history, spanning the Americas, parts of Asia, Africa, and Europe, characterized by its vast territories and colonial wealth from the 16th to the 19th centuries.