Under a fixed exchange rate regime, suppose there is an increase ...

[CORALGRILL2014]

Under a fixed exchange rate regime, suppose there is an increase in housing wealth that causes an increase in consumption. This wealth-induced increase in consumption will cause
 
  A) an increase in investment.
  B) a reduction in net exports.
  C) an increase in imports.
  D) all of the above
  E) none of the above

Question 2

Suppose depreciation per worker is less than saving per worker. Given this situation, explain what will happen to each of the following variables over time: capital per worker, output per worker, saving per worker, and consumption per worker.
 
  What will be an ideal response?

[Chelseyj.hasty]

Answer to Question 1

D

Answer to Question 2

If depreciation is less than saving, it is also less than investment. Alternatively, there is excess investment to offset the amount of capital that wears out. So, the capital stock will increase. This will cause an increase in K/N, Y/N, and S/N. As Y/N rises, so will C/N.

[CORALGRILL2014]

Thank you

[Chelseyj.hasty]

Happy to help you