What impact does a decrease in the price level in the United States have on net exports and why?
A) A decrease in the price level reduces net exports because lower prices increase American spending on imports.
B) A decrease in the price level increases net exports because lower prices increase the value of the dollar.
C) A decrease in the price level reduces net exports because lower prices raise the value of the dollar.
D) A decrease in the price level increases net exports by reducing the relative cost of American goods.
Question 2
According to the Taylor rule, the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate, the current inflation rate, one-half times the ________, and one-half times the ________.
A) interest rate gap; inflation gap B) inflation gap; output gap
C) interest rate gap; output gap D) unemployment gap; government-spending gap
tongue states
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