Under a fixed exchange rate regime, contractionary fiscal policy ...

[maychende]

Under a fixed exchange rate regime, contractionary fiscal policy will tend to cause which of the following?
 
  A) a reduction in imports
  B) a reduction in net exports
  C) an increase in investment
  D) all of the above

Question 2

For an economy in which there is no technological progress, explain what must occur for the steady state to occur. Also explain what this implies about the rate of growth of output, output per worker, and the capital stock.
 
  What will be an ideal response?

[laurnthompson]

Answer to Question 1

A

Answer to Question 2

The steady occurs when the economy is in equilibrium. Specifically, the steady state refers to the situation where K/N and Y/N are constant. K/N will not change when investment per worker equals depreciation per worker. During the adjustment process, the growth rates of Y, Y/N, and K/N will all be negative. Once the steady state is reached, these variables are constant and the growth rates will be zero.