Explain how expansionary and contractionary monetary policies affect aggregate demand through the exchange rate channel
What will be an ideal response?
An expansionary monetary policy reduces real interest rates, causing depreciation of the domestic currency. This depreciation increases net exports and aggregate spending. A monetary contraction increases real interest rates, causing appreciation of the domestic currency, reducing net exports and aggregate spending.
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For a country in autarky, the opportunity cost of the good on the horizontal axis is the same as
A) the relative price of the good on the vertical axis. B) the relative price of the good on the horizontal axis. C) the opportunity cost of the good on the vertical axis. D) Both A and C. E) None of the above.
Once marginal cost rises above the average cost,
a. Average costs will increase b. Average costs will decrease c. Average costs will stay the same d. None of the above
Unemployment insurance:
A. is an explanation for why wages do not reach equilibrium. B. can affect how quickly people find jobs. C. will not affect the natural rate of unemployment. D. is a mandated federal policy all states must adhere to.
The real interest rate is:
A. adjusted for inflation. B. the actual average interest rate in the economy. C. the amount of interest the bank pays you for saving or charges you for borrowing. D. the everyday notion of the interest rate.