In the aggregate demand/aggregate supply framework, Select one: a. neither expan

Question

In the aggregate demand/aggregate supply framework, Select one: a. neither expansionary fiscal nor expansionary monetary policy has a permanent impact on the natural level of income and employment. b. only monetary policy has a long-run impact on income and unemployment under flexible exchange rates. c, only fiscal policy has a long-run impact on income and employment under flexible exchange rates. d. only monetary policy has a short-run impact on income and employment under fixed exchange rates. In a situation of stagflation, the use of demand-oriented macro policy to address the problem of the rising price level would, at least in the short run,the price level andthe level of output in the economy. Select one: a. increase /increase b. increase/ decrease c.decrease/increase d. decrease / decrease The "Asian crisis" of 1997-1998 importantly involved movement of short-term financial capital currencies, which in turn caused countries such as Thailand and Malaysia, with a consequent of their in the trade balances of other countries. Select one: a. out of / depreciation / an improvement b. out of / appreciation /a deterioration c. out of/depreciation a deterioration d. into appreciation /an improvement

Explanation / Answer

Answer 1:

Option B. Using Mundell flemming model and free capital mobility, it is believed that fiscal policy is strong under fixed exchange rate while monetary policy is strong under flexible exchange rate.

Answer 2:

Option D. reducing the level of aggregate demand in case of stagflation when the supply curve of the economy shifts leftwards would atleast in the short run, decrease the price level and decrease the level of output in the economy.

Answer 3:

Option C. During the time of crisis, there was movement of short term financial capital out of countries such as Thailand, Malaysia, which led to depreciation of their currencies which caused a deterioration in the trade balance of other countries.

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