The aggregate supply curve shows the relationship between the:
a. The Consumer Price Index and the level of output.
b. Real risk-free interest rate and expected inflation.
c. The nation's average price level (i.e., the implicit price index) and the level of output.
d. Nominal exchange rate and level of output.
e. None of these answers is correct.
Question 2
Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the current international transactions balance and monetary base in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium.
a. The current international transactions balance rises and monetary base rises.
b. The current international transactions balance rises and monetary base falls.
c. The current international transactions balance and monetary base fall.
d. The current international transactions balance and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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