A good way to start every Three-Sector-Model analysis is to:
a. Describe what is happening in the foreign exchange market and then proceed to explain what happens in the other two markets simultaneously.
b. Identify the economic effects that result from an economic change and then work your way backward to identify the most important part of the analysis, which is the economic shock that started it all.
c. Analyze the chain reaction of economic interactions.
d. Gather basic information about the three markets and describe qualitatively the economic setting in each market.
Question 2
Which of the following is not a way in which high inflation reduces productivity?
a. High rates of inflation increase menu costs.
b. Rapid inflation destroys work incentives and encourages speculation.
c. Variable rates of inflation create insecurity.
d. High inflation rates also have the power to deteriorate international competitiveness.
e. High rates of expected inflation increase the real interest rate and thus reduce investment.
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