Monetary expansion causes the current account balance to increase in the short run. Discuss. Is the same the case for fiscal expansion?
What will be an ideal response?
Am increase in the money supply leads to an increase in Y and E (output increases and the currency depreciates, respectively). Because of the currency depreciation, domestic goods are now cheaper compared to foreign goods. Exports increase and imports decrease, therefore the CAB increases.
An expansion of fiscal policy actually reduces the CAB: the DD curve is shifted right. Therefore Y rises, but E falls (output rises but the currency appreciates.) Domestic goods are more expensive, and the CAB falls.
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The conclusion that the economy has price flexibility, wage flexibility, and perfectly competitive markets justifies
A) rational policy making. B) passive policy making. C) active policy making. D) none of the above.
If two goods are substitutes, the cross-price elasticity of demand must be
A) negative. B) positive. C) zero. D) infinite.
________-term forecasts are more valuable if a firm's demand changes very frequently and changes in the firm's output level have a ________ effect on its marginal cost.
A) Long; small B) Short; large C) Long; large D) Short; small
Which of the following is not true about income quintiles?
a. Only one in seven households in the bottom quintile has anybody working full time b. Only one in three households in the top quintile has anybody working at all c. A primary contributor to the smaller share of income going to the bottom quintile has been the growth of single-parent households d. Three out of four households in the top quintile have two or more working e. A primary contributor to the larger share of income going to the top quintile has been the growth of two-earner households