If domestic income falls, what must happen to keep the trade balance the same?
a. The real exchange rate must fall.
b. Foreign income must rise.
c. The domestic price level must fall.
d. Domestic income must fall.
Answer: a. The real exchange rate must fall.
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The fluctuations in both money supply growth and the federal funds rate during 1979-1982 suggest that the Fed
A) had shifted to borrowed reserves as an operating target. B) had shifted to total reserves as an operating target. C) had shifted to the monetary base as an operating target. D) never intended to target monetary aggregates.
Based on the expectations-augmented Phillips curve, if the natural rate of unemployment is 0.06, and if the actual inflation rate exceeds the expected inflation rate, then the unemployment rate is
A) less than 0.06. B) 0.06. C) more than 0.06. D) 0.06 plus 0.5 times the difference between actual and expected inflation.