The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy was at Point A, a triple intersection. Here, the FE curve is flatter than the LM curve.
To defend the fixed exchange rate, at Point B the country's monetary authority must
A. sell domestic currency.
B. buy domestic currency.
C. sell foreign government bonds.
D. buy domestic government bonds.
Answer: A
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Firms maintain their completive edge by
a. Providing a good at lower costs than their rivals b. Providing a superior product at the same cost as your rival c. Being innovative d. All the above
The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?
a. $460 million merits and $150 million merits b. $310 million merits and $190 million merits c. $350 million merits and $190 million merits d. $390 million merits and $110 million merits