Explain the difference between the international trade effect, which leads to a movement along a given AD curve, and an increase in foreign incomes, which leads to a shift to a new AD curve
The international trade effect is the result of a change in the domestic price level, which is why it is shown as a movement along the AD curve, while the shift to a new AD curve is the result of an increase in foreign incomes, which occurs without any change in the price level, which is why it is shown as a shift in the AD curve.
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When a country's real exchange rate appreciates,
A) its nominal exchange rate must also have appreciated. B) its nominal exchange rate must have depreciated. C) it can trade its goods for fewer units of foreign goods. D) it can trade its goods for more units of foreign goods.
A decrease in the foreign real interest rate will tend to cause, other things the same ________
A) a decrease in the return on dollar assets relative to foreign assets B) an increase in the demand for dollars C) a depreciation of the domestic currency D) individuals to hold fewer dollar assets
The risk adjusted discount rate
A) is the sum of the risk-free rate and the risk premium. B) includes risk in the denominator of the present value calculation. C) includes risk in the numerator of the present value calculation. D) All of the above
In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow
a. and the real exchange rate increase.
b. and the real exchange rate decrease.
c. increases and the real exchange rate decreases.
d. decreases and the real exchange rate increases.