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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