43. As the economy moves up and to the right along the IS curve, which of the fo

Question

43. As the economy moves up and to the right along the IS curve, which of the following will occur when exchange rates are flexible? A) investment spending increases B) consumption increases C) the domestic currency depreciates D) all of the above E) none of the above 44. In an open economy under flexible exchange rates and represented by the IS-LM-IP model, a reduction in government spending will cause a reduction in which of the following? A) net exports B) the exchange rate, E C) exports D) all of the above E) none of the above 45. In an open economy under flexible exchange rates, expansionary monetary policy that results in an increase in the moncy supply will always cause A) an increase in output. B) an increase in exports. C) a reduction in the exchange rate, E D) all of the above E) only A and C 46. For this question, assume that there is a simultaneous increase in government spending and monetary contraction. In a flexible exchange rate regime, we know with certainty that such a policy mix will cause which of the following? A) an increase in the domestic interest rate B) an increase in the exchange rate C) a reduction in net exports D) al of the above E) only A and C 47. Suppose there are two countries that are identical in every way with the following exception Country A is pursuing a fixed exchange rate regime and country B is pursuing a flexible exchange rate regime. Suppose taxes are increased in both countries rises by the same amount. Given this information, we know that A) the change in output in A will be greater than in B B) the change in output in B will be greater than in A. C) the change in output will be the same in both countrics. D) the relative output effects are ambiguous.

Explanation / Answer

43. When exchange rates are flexible, As the economy moves to the right along IS curve, consumption and investment spending increases and domestic currency depreciates.

Answer- option D

44. In an open economy under flexible exchange rates and represented by IS-LM-IP model, a reduction in government spending will cause a reduction in Exports.

Answer- option C

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