A Contractionary Monetary Policy Causes

question 200

Multiple Choice

A contractionary monetary policy causes

• A) higher interest rates, which increases the international price of the dollar and decreases net exports.
• B) higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports.
• C) lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports.
• D) higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports.

---

Definitions:

Multiplier

An economic factor that quantifies the additional effect on income or output resulting from an injection of spending.

Deflationary Gap

A situation in economics where actual production is lower than the potential output level, often resulting in unemployment and unused productive capacity.

Equilibrium GDP

The level of Gross Domestic Product where aggregate supply equals aggregate demand in an economy.

Full Employment GDP

The output level produced by the economy when all available resources are efficiently employed, representing potential GDP under full employment.