Which Set of Events Would Best Explain the Effects of a Contractionary

question 4

Multiple Choice

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

• A)It decreases domestic interest rates, causing the dollar to appreciate and net exports to decrease.
• B)It decreases domestic interest rates, causing the dollar to depreciate and net exports to increase.
• C)It decreases domestic interest rates, causing the dollar to depreciate and net exports to decrease.
• D)It increases domestic interest rates, causing the dollar to appreciate and net exports to decrease.

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Definitions:

Price Change

A modification in the cost of goods and services over time, reflecting economic factors such as inflation, supply, and demand.

Pepsi

A carbonated soft drink manufactured by PepsiCo, known for being one of the most popular cola beverages globally alongside Coca-Cola.

Coke

A fuel with a high carbon content and few impurities, made by heating coal in the absence of air, used mainly in steel manufacturing.

Income Effect

The alteration in the income of either a person or an economy and the impact this change has on the demand for a specific product or service.