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:

Standard Deviation

A statistical measure of the dispersion or variability of a set of numbers, indicating how spread out the numbers are from the mean.

Expected Return

The weighted average of all possible returns from an investment, where each return is weighted by its probability of occurring.

Real Estate Project

An initiative involving the purchase, improvement, management, or sale of property assets for the purpose of generating profits or revenue.

Risk-Free Asset

An investment that is expected to return its original value without any loss, theoretically free from default risk.