How is the AA schedule derived?
A) The AA schedule has a positive slope because an increase in output leads to a depreciation of the currency.
B) The AA schedule has a negative slope because an increase in output leads to a decrease in the domestic interest rate.
C) The AA schedule has a negative slope because an increase in output leads to an increase in the domestic interest rate and a domestic currency appreciation.
D) The AA schedule has a positive slope because an increase in the money supply leads to an increase in the domestic interest rate.
E) The AA schedule has a positive slope because a decrease in output leads to a depreciation of the currency.
Question 2
The prohibitive tariff is a tariff that
A) is so high that it eliminates imports.
B) is so high that it causes undue harm to trade-partner economies.
C) is so high that it causes undue harm to import competing sectors.
D) is so low that the government prohibits its use since it would lose an important revenue source.
E) is so low that it causes domestic producers to leave the industry.
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