Compare the effectiveness of monetary policy in an open economy with mobile international capital with monetary policy in a closed economy. Why is it different? Use an appropriate diagram to illustrate your answer.
What will be an ideal response?
An appropriate diagram should resemble Figure 36-7 in the text. Monetary policy is more effective (that is, it has a larger effect on real GDP) in an open economy than it is in a closed economy. A change in monetary policy that is intended to raise aggregate demand to counteract recession will often lower interest rates. A decrease in interest rates will trigger a currency depreciation, which will increase net exports and, therefore, add an additional element to the outward shift in aggregate demand. The foreign exchange market effects further enhance the expansionary effects of looser monetary policy.
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Given the production possibilities schedule in the above table, a combination of 75 televisions and 60 personal computers
A) is attainable but involves the unemployment of some of society's resources. B) clearly illustrates the trade-off between televisions and computers. C) cannot be produced by society, given its current level of resources and production technology. D) can be produced only if society is willing to have some of its resources used inefficiently.
Taxes on labor tend to increase the number of hours that people choose to work
a. True b. False Indicate whether the statement is true or false
When a country has an absolute advantage in the production a few commodities, autarky is always preferred to trade
Indicate whether the statement is true or false
Which of the following is not a possible explanation as to why wage inequality increased markedly over the last 40 years in the United States?
A. There was an increase in the supply of low-skill workers, particularly through immigration. B. Recent technological changes have been complementary to skilled labor while substituting for unskilled labor. C. Competition from international economies has increased demand for highly productive workers. D. Institutional changes in the United States such as a steady decline in union coverage and a falling real minimum wage have led to changes in the wage distribution. E. Federal legislation allowed employers to legally engage in more racial discrimination.