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The correct choice, which identifies the construction method where exterior wall studs extend continuously from the foundation through both the first and second stories, is balloon-frame construction. This traditional framing technique features long vertical wall studs that reach from the ground level all the way up to the roof, allowing for a vertical continuity between floors.

In balloon framing, the studs act as a key structural element, providing not only support for the walls but also contributing to the overall height and design flexibility of the structure. This type of construction differs significantly from platform framing, where each floor's joists and studs are built independently, resulting in a break between stories.

Understanding balloon framing is pivotal in recognizing its implications for building stability and insulation, as it has fewer interruptions in the walls, which can enhance thermal performance if designed with proper insulation. This knowledge is especially relevant in historical contexts, where balloon-frame construction was commonly employed prior to the rise of platform framing in the early 20th century, owing to labor and material efficiencies.