Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?
What will be an ideal response?
Expansionary fiscal policy (as from tax cuts or increases in government spending) will increase aggregate demand. However, expansionary fiscal policy can result in higher interest rates if government or private saving falls as a result of expansionary fiscal policy. The higher interest rates reduce not only consumption and investment, but they also reduce net exports. That is, the crowding out effect may be much larger than in the case of a closed economy. Because the impact of expansionary fiscal policy has a negative impact on net exports that does not exist in a closed economy, fiscal policy has a smaller impact on aggregate demand in an open economy than in a closed economy.
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The value of the marginal product of labor equals the marginal product of labor times the:
A. price of output. B. real wage. C. nominal wage. D. quantity of labor.
Using the data in the table above, if the price of a stapler is $5, then there is ________ of staplers, and the quantity of staplers demanded ________ the quantity of staplers supplied
A) a shortage; is greater than B) a surplus; is less than C) a shortage; is less than D) a surplus; is greater than E) neither a surplus nor a shortage; equals
The market where currencies may be bought and sold for immediate delivery is known as
A) the forward exchange market. B) the spot exchange market. C) the purchasing power market. D) the futuristic exchange market.
A horizontal LM curve implies that the expenditure multiplier, when compared with the simple Keynesian expenditure multiplier, is
A) smaller. B) larger. C) equal. D) equal to the inverse of the simple multiplier.