econ 331 practice final - -this trade deficit offsets high...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
1997 1. identify a. decreased prices will increase consumption and spending which will drive aggregate demand up. This will eventually cause prices to increase again and will stabilize consumption. (3/29) b. capital outflow raises price of foreign exchange. This will have positive impact on exports and give home producers an advantage as import prices rise. (4/17) c. d. wages go up, prices go up. inflation caused by increased prices of imported goods. This usually occurs in commodity price increases. e. 2. efad 3. –fixed exchange rate policy produces trade deficit.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: -this trade deficit offsets high inflationary rates and creates more goods in the home economywhich will in turn stabilize inflation and price levels. -monetary policy works best to get rid of any residual inflation. -it decreases AD by raising interest rates.-this will attract capital flow.-increased foreign exchange availabilities.-in order to maintain policy, the central bank will have to sterilize, which controls money supply and limits monetary policy....
View Full Document

Ask a homework question - tutors are online