Suppose a country has no trade with other countries and people can borrow as many funds as they want at the current interest rate. An increase in the price level will generate
A) a decrease in total planned real expenditures because of the real-balance effect.
B) a decrease in total planned real expenditures because the indirect effect will be stronger than the real-balance effect.
C) a decrease in total planned real expenditures because the real-balance effect will be stronger than the indirect effect and the open-economy effect.
D) a decrease in total planned real expenditures because of the open-economy effect and the indirect effect.
Question 2
Fiscal policy
A) uses the tool of interest rates to stimulate private savings.
B) uses the tools of taxation and spending in an effort to address inflation and unemployment.
C) uses the tool of the exchange rate to discourage imports.
D) uses the tool of business regulation to increase economic efficiency.
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