V4 Question 44Under 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-runequilibrium 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 45Under 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-runequilibrium, and then adjusts to its new long-run equilibrium. Compared to the short-run equilibrium, wefind that the new long-run equilibrium hasa 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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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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