Assume that policy makers are pursuing a fixed exchange rate regime. Assume that the economy is initially operating at the natural level (i.e., Y = Yn). Suppose fiscal policy makers increase government spending. This fiscal contraction will cause which of the following?
A) The real exchange rate will be permanently higher in the medium run.
B) The real exchange rate will be permanently lower in the medium run.
C) The effects of this devaluation on the real exchange rate will be ambiguous in the medium run.
D) The real exchange rate will be unchanged in the medium run.
E) none of the above
B
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Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result
A) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease. B) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. C) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. D) both the equilibrium price and quantity of MP3 players will decrease.
Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts more than the demand curve. As a result
A) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. B) both the equilibrium price and quantity of MP3 players will decrease. C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.