In a Small Open Economy with a Flexible Exchange Rate

question 57

Multiple Choice

In a small open economy with a flexible exchange rate, which of the following effects will a contractionary fiscal policy have?

• A)It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase.
• B)It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease.
• C)It will cause the Canadian interest rate to fall below the world interest rate for a short period of time, which in turn will cause the dollar to appreciate and net exports to decrease.
• D)It will cause the Canadian interest rate to rise above the world interest rate for a short period of time, which in turn will cause the dollar to depreciate and net exports to increase.

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Definitions:

Cognitive Processes

Mental processes involved in gaining knowledge and understanding, including perception, thinking, memory, judgment, and problem-solving.

Conditioned Reinforcers

Secondary reinforcers that acquire their reinforcing qualities through their association with primary reinforcers.

Fixed-Interval

In operant conditioning, a schedule of reinforcement where rewards are presented at fixed time intervals, as long as the appropriate response is made.

Variable-Interval

A schedule of reinforcement where rewards are given after unpredictable time intervals, in the context of behavior conditioning.