How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade?
A) An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade.
B) An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade.
C) An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade.
D) An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade.
B
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"In the classical model, the equilibrium level of real Gross Domestic Product (GDP) is completely supply-determined." Do you agree or disagree? Why?
What will be an ideal response?
Sovereign debt crises are triggered ________
A) by innovations in subprime real estate markets B) when a country's debt-to-GDP ratio becomes excessively high C) when austerity measures cause a sharp fall in the supply of government bonds D) by the adoption of a common currency, such as the euro