How is the impact of contractionary monetary policy different in an open economy than in a closed economy?
What will be an ideal response?
In an open economy, the higher interest rate resulting from contractionary monetary policy will affect not only consumption and domestic investment, but it will also affect net exports and net capital flows. Higher interest rates will increase capital inflows and reduce capital outflows, resulting in an increase in the exchange rate which will reduce net exports. The result is that monetary policy has a stronger effect in an open economy than in a closed economy.
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Describe the changes in the variables that will cause the demand for a product to increase, shifting the demand curve to the right
What will be an ideal response?
Because increases in inflation reduce aggregate spending and short-run equilibrium output:
A. the aggregate demand curve is horizontal. B. the aggregate demand curve is downward sloping. C. the aggregate demand curve is upward sloping. D. the short-run aggregate supply line is downward sloping.
If two grade-school children willingly trade their lunches with one another, we can conclude that at least one of them preferred the other's lunch to his own
Indicate whether the statement is true or false
During 2016, Sean's consumption equals $25,000 and the change in his net worth is -$5,000. Sean's economic income for 2012 is
A. $5,000. B. $20,000. C. $25,000. D. $30,000.