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 decreases net exports.
D) Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports.
Question 2
Georgia's great uncle gave her a 5,000 savings bond as a wedding gift. The bond pays 5,000 at maturity, which is in 10 years. If the interest rate is 4, the bond has a present value of 3,377.82.
Indicate whether the statement is true or false
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The fiscal policy to counter an inflationary gap is a(n)