Contractionary fiscal policy in the United States reduces domestic income, prices, and interest rates, so the exchange rate will decrease: 1. True 2. False In general, budget deficits should: 1. never be run since they slow economic growth over the long run

2. be run on a permanent basis since they can always be financed by printing money

3. never be run since they crowd out investment in the short run

4. be run on a temporary basis whenever the economy is below potential output. Because the political institutions of many developing countries are weak: 1. a laissez-faire policy is counterproductive

2. it is easier for them to conduct activist economic policies that foster development

3. it is harder for them to conduct activist economic policies that foster development

4. it is no more difficult for them to adopt activist economic policies than it is for developed countries