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

question 108

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.
• E)Contractionary fiscal policy reduces the deficit, which raises the interest rate, which in turn increases foreign investment.

Understand the principles of effective management of operations to reduce costs.

Identify the importance of decision consistency concerning cost relevance.

Analyze the strategic implications of capacity utilization, bottleneck management, and joint costs in operations.

Understand the financial implications of continuing or discontinuing products based on their variable costs and traceable fixed costs.

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Definitions:

Contribution Margin Ratio

The contribution margin ratio is a financial metric that measures the proportion of revenue that exceeds total variable costs, indicating how much of each sale contributes to covering fixed costs.

Profit-Volume Ratio

A financial tool used to analyze the relationship between profit and sales volume, showing the impact of sales changes on profits.

Unit Contribution Margin

The dollars available from each unit of sales to cover fixed costs and provide operating profits.

Break-Even Point

The level of operations at which a company’s revenues and expenses are equal.