Explain what factors cause shifts of the aggregate demand curve in the open economy model
What will be an ideal response?
The standard of list of determinants that appeared for the closed economy version of the AD relation still exists here (e.g. G, T, ... ). There are several international variables that must be added: Y*, E, P* and, in a fixed exchange rate regime, i*. The domestic price level also affects AD because of its effect on the real exchange rate.
You might also like to view...
The marginal physical product of labor is not
a. the change in output that results from employing an additional worker b. the average productivity of each worker employed c. the marginal contribution to output of each additional worker d. a measure of the contribution of an additional worker to output e. usually increasing at an increasing rate for the first units of labor used in production
When a recession hits, we would expect the government to run a budget deficit by raising the level of its spending or by cutting taxes, or perhaps both. The Fed would be expected to:
A. reduce the required reserve ratio, increase the discount rate, and buy securities on the open market. B. reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market. C. reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market. D. increase the required reserve ratio, reduce the discount rate, and sell securities on the open market.