Assume That There Is a Simultaneous Increase in Government Spending

Multiple Choice

Assume that there is a simultaneous increase in government spending and a monetary contraction. In a flexible exchange rate regime, we know with certainty that such a policy mix will cause which of the following?

A) A decrease in net exports.
B) An increase in the domestic interest rate.
C) An increase in the exchange rate.
D) Both A and B.
E) Both B and C.