Question

f contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand? Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports. Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports. Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports. Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports If the economy is close to full employment, an increase in government spending may increase GDP in the short run, but in the long run, this policy may: reduce investment in new capital make domestic businesses less competitive in international markets if the dollar appreciates in value. raise interest rates and reduce consumer expenditures on cars and new houses All of these options are correct. Which of the following is considered contractionary fiscal policy? The government increases defense spending due to a change in priorities. The government increases the income tax rate. The government reduces family benefit for high-income families to reduce inequality. A state (not federal) government cuts highway spending to balance its budget.

Answer 1

Ques1. A (explained below)

Ques2. D

Ques3. B

Explaination:

Ques1

1. Contraction monetary policy causes an decrease in bond prices and a increase in interest rates.
2. High interest rates lead to lower levels of capital investment.
3. The high interest rates make domestic bonds more attractive, so the demand for domestic bonds risesrise the demand for foreign bonds falls
4. The demand for domestic currency rises and the demand for foreign currency falls, causing a increase in the exchange rate.