In the open market economy, contractionary fiscal policy would ______the demand for money and interest rates would_______ and the dollar________ and net exports_______.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy reduces government spending and increases taxes, which decreases the disposable income of households and firms, leading to a decrease in the overall demand for goods and services. This decrease in demand for goods and services will, in turn, lead to lower demand for money, as the need for funds to finance production or consumption declines. As a result, interest rates will generally fall, as there is less demand for borrowing, and the dollar will depreciate, as foreign investors become less interested in investing in the country. This may lead to an increase in net exports, as the cheaper dollar makes exports more affordable and imports more expensive.

In the Open Market Economy, Contractionary Fiscal Policy Would ______The