A classical IS—LM model of the world economy can be used to show that in a flexible exchange-rate system, a temporary increase in government purchases will cause
A) output and the real interest rate to rise, which reduces net exports but has an ambiguous effect on the real exchange rate.
B) output and the real interest rate to rise, which increases net exports but has an ambiguous effect on the real exchange rate.
C) output to rise and the real interest rate to fall, which reduces net exports and causes the exchange rate to depreciate.
D) the real interest rate to fall, which causes the exchange rate to rise, which reduces net exports.
A
You might also like to view...
An external cost is:
A. the cost of a warehouse. B. a cost of production in some other market. C. the economic harm that a positive externality imposes on others. D. the economic harm that a negative externality imposes on others.
If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion
a. True b. False Indicate whether the statement is true or false
Toot Sweets Bakery sells freshly baked muffins from 6.30 am at $1.20 per muffin. By 4 pm, the remaining muffins are marked down to $0.60 each. Which of the following statements is true?
A) Toot Sweets is trying to minimize its loss.
B) Toot Sweets engages in price discrimination; a higher price for those who cannot wait and a lower price for those willing to wait until 4 pm.
C) Toot Sweets has underestimated the demand for its muffins.
D) Toot Sweets is trying to prevent the opportunity to make arbitrage profit.
How did the international monetary system influenced macroeconomic policy-making and performance during the gold standard era (1870-1914)?
What will be an ideal response?