What are the effects of an expansionary fiscal policy on interest rates and output in an open economy with floating exchange rates?
What will be an ideal response?
With an expansionary fiscal policy in an open economy with floating exchange rates, the IS curve shifts to the right. This puts upward pressure on inflation, and the Fed responds by increasing the real interest rate. The higher real interest rate makes investment more attractive in the United States, so net capital outflows decrease. The dollar appreciates in value, and net exports and output decrease.
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The marginal propensity to save is defined as
A) the change in saving divided by the change in disposable income. B) disposable income divided by saving. C) the change in disposable income divided by the change in saving. D) saving divided by disposable income.
If only one good is supplied and demanded in an economy, then GDP will be equal to the price of the good multiplied by the number of units of the good supplied in a year
a. True b. False Indicate whether the statement is true or false
Economic takeoff:
A. occurs when development becomes self-sustaining. B. will eventually occur in all developing countries. C. typically occurs in the absence of foreign investment. D. has yet to occur in any developing country.
When there are external economies of scale, an increase in the size of the market will
A) increase the number of firms and lower the price per unit. B) increase the number of firms and raise the price per unit. C) decrease the number of firms and raise the price per unit. D) decrease the number of firms and lower the price per unit. E) not affect the number of firms, but will lower the price per unit.