When a nation chooses to fix or float its currency exchange rate, it should cons

Question

When a nation chooses to fix or float its currency exchange rate, it should consider a. only its domestic banks, importers, and exports. b. only whether it has a great deal of economic integration. c. only whether it has similar circumstances in terms of demand or supply shocks with its trading partners d. both the level of economic integration and the similarity of demand or supply shocks. In the AD/AS framework, when the economy is in long-run equilibrium, Select one: a. inflation is occurring. O b. the entire labour force is employed. c. actual prices are equal to expected prices. d. actual levels of income and employment are less than the natural levels of income and employment. Appreciation of the domestic currency will Select one: 0 a. increase domestic aggregate demand. b. decrease domestic aggregate supply. c. decrease domestic aggregate demand, and possibly increase domestic aggregate supply. d. cause a deterioration in the trade balance, but have no effect on aggregate supply or demand.

Explanation / Answer

1. OPTION D

2. In AD AS framework, in the long run prices rise I.e. inflation occurs.

OPTION A

3. Appreciation of the domestic currency will lead to decreased aggregate domestic demand and increase domestic aggregate supply.

OPTION C

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