Suppose the economy is operating below the natural level of output. Discuss the arguments for and against using a devaluation in such a situation
What will be an ideal response?
With a devaluation, Y returns to the natural level much more rapidly. This would cause an increase in NX, an increase in demand, and an increase in Y. Graphically, the AD curve would shift to the right. Economy self-corrects. This is an advantage. However, with a devaluation, individuals might begin to doubt the country's commitment to a fixed exchange rate regime. This could lead to an exchange rate crisis.
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Fiscal policy is the manipulation of government spending and taxes
a. True b. False Indicate whether the statement is true or false
Which of the following is a TRUE statement?
A. To get more money, one must earn interest on money. B. To demand money is to demand a higher income. C. To use money, one must hold money. D. To demand money is to demand wealth.