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A contractionary fiscal policy can be illustrated by a(n):
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- A contractionary monetary policy lowers equilibrium real GDP in the short run, by increasing the interest rate. In an open economy, the net export effectA.has no effect on real GDP since changes in exports and imports cancel each other.B.reinforces the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, lowers U.S. imports and causes the real GDP to fall.C.reinforces the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, lowers U.S. exports and causes the real GDP to fall.D.weakens the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, increases U.S. exports and causes the real GDP to increase.
- Which of the following statements is false?A. Economists who believe that the economy is self-regulating advocate for a great deal of government intervention to help push the economy toward long-run equilibrium.B. Classical economists believed that wages, prices, and interest rates are flexible.C. Economists who believe that the economy is self-regulating advocate for a macroeconomic policy of laissez-faire.D. Classical economists believed that Say's law holds in a money economy.