Question 44 Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After permanent fiscal expansion, when the economy adjusts from its short-run equilibrium to the new long-run equilibrium, DD remains unchanged; AA shifts back to its position in the initial long-run equilibrium. DD shifts to the left; AA shifts up. Both DD and AA shift back to their positions in the initial long-run equilibrium; DD shifts back to its position in the initial long-run equilibrium; AA remains unchanged. DD remains unchanged; AA shifts down.
Question 44 Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After permanent fiscal expansion, when the economy adjusts from its short-run equilibrium to the new long-run equilibrium, DD remains unchanged; AA shifts back to its position in the initial long-run equilibrium. DD shifts to the left; AA shifts up. Both DD and AA shift back to their positions in the initial long-run equilibrium; DD shifts back to its position in the initial long-run equilibrium; AA remains unchanged. DD remains unchanged; AA shifts down.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter19: International Finance And The Foreign Exchange Market
Section: Chapter Questions
Problem 5CQ
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Question
V4
![Question 44
Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-
employment output level. After permanent fiscal expansion, when the economy adjusts from its short-run
equilibrium to the new long-run equilibrium,
DD remains unchanged: AA shifts back to its position in the initial long-run equilibrium.
DD shifts to the left: AA shifts up.
Both DD and AA shift back to their positions in the initial long-run equilibrium;
DD shifts back to its position in the initial long-run equilibrium; AA remains unchanged.
DD remains unchanged: AA shifts down.
Question 45
Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-
employment output level. After permanent fiscal expansion, the economy first reaches its short-run
equilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we
find that the new long-run equilibrium has
a higher output level and the same nominal exchange rate, E.
the same output level and a higher nominal exchange rate, E.
a higher output level and a lower nominal exchange rate, E.
a lower output level and the same nominal exchange rate, E.
a lower output level and a lower nominal exchange rate, E.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8aa3ba6-71a3-412b-ba4a-2e63a1c6167a%2Fd311a46e-8280-422c-b3b7-ff2ffd38ac41%2Fx8yo7mn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 44
Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-
employment output level. After permanent fiscal expansion, when the economy adjusts from its short-run
equilibrium to the new long-run equilibrium,
DD remains unchanged: AA shifts back to its position in the initial long-run equilibrium.
DD shifts to the left: AA shifts up.
Both DD and AA shift back to their positions in the initial long-run equilibrium;
DD shifts back to its position in the initial long-run equilibrium; AA remains unchanged.
DD remains unchanged: AA shifts down.
Question 45
Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full-
employment output level. After permanent fiscal expansion, the economy first reaches its short-run
equilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, we
find that the new long-run equilibrium has
a higher output level and the same nominal exchange rate, E.
the same output level and a higher nominal exchange rate, E.
a higher output level and a lower nominal exchange rate, E.
a lower output level and the same nominal exchange rate, E.
a lower output level and a lower nominal exchange rate, E.
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