Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?

What are specific assets?

Assume the government decides to reduce spending in order to reduce the budget deficit, which it financed by borrowing in the real credit market. What is the first round effect on the value of the domestic currency, if there is low mobility in the international capital markets?

a. The value of the currency rises. b. The value of the currency falls. c. The value of the currency is unaffected. d. The change in the value of the currency is ambiguous.