Suppose a country switches from a fixed to a flexible exchange ...

[Jkov05]

Suppose a country switches from a fixed to a flexible exchange rate. Which of the following will occur as a result of this change?
 
  A) Monetary policy will become a less effective tool for changing output.
  B) A given change in government spending will now have a greater effect on output.
  C) Both fiscal and monetary policy will become more effective in changing GDP.
  D) Both fiscal and monetary policy will become completely ineffective in changing GDP.
  E) none of the above

Question 2

Explain each of the following: (1 ) constant returns to scale; (2 ) decreasing returns to capital; and (3 ) decreasing returns to labor.
 
  What will be an ideal response?

[samiel-sayed]

Answer to Question 1

E

Answer to Question 2

All three of these things refer to characteristics of the production function. CRS means that if all inputs change by the same proportion, the level of output will change by the same proportion. Decreasing returns to capital and labor indicates that increases in either resource will cause output to increase but at a decreasing rate.

[Jkov05]

Excellent

[raenoj]

TYSM