Suppose an "emerging market" economy becomes attractive to foreign investors. What are the likely consequences for the economy's currency and, thus, the macroeconomy?
What will be an ideal response?
High demand for the economy's assets causes high demand for the economy's currency, causing it to appreciate. Nominal appreciation reduces net exports and lowers inflation. An autonomous easing of monetary policy can increase aggregate demand, but the decrease in the real interest rate will not necessarily dampen enthusiasm for the country's assets.
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The Great Recession of 2008-09 was an ideal case for fiscal policy because:
A. a healthy financial sector improves the timeliness of expansionary fiscal policy. B. targeting and timeliness are less important when a recession is the result of the bursting of an asset bubble. C. the most-easy-to-target sectors were those that were the most affected by unemployment. D. targeting and timeliness are less important when a recession is very severe and lasts a long time.
Saving represents
A) a source of funds for business investment. B) a normal part of the circular flow of income and output. C) an injection to the circular flow of income and output. D) a counter-example to Say's law that the classical economists never considered.