Suppose policy makers want to increase Y and keep NX constant. Which of the following policies would most likely achieve this?
A) an increase in government spending
B) a real depreciation
C) an increase in government spending and a reduction in the real exchange rate
D) a reduction in the real exchange rate
E) encourage the country's trading partners to implement policies that will cause an increase in foreign income (Y)
Question 2
For this question, assume that the economy is initially operating at the natural level of output. An increase in the price of oil will cause which of the following in the medium run?
A) a reduction in the interest rate
B) a reduction in output and an increase in the aggregate price level
C) a reduction in output and a reduction in the interest rate
D) a reduction in unemployment, an increase in the nominal wage and an increase in the aggregate price level
E) a reduction in the aggregate price level and no change in output
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