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Author Question: A common argument for fixed exchange rates is that they A) give central banks greater freedom in ... (Read 103 times)

Evvie72

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on: Jun 30, 2018
A common argument for fixed exchange rates is that they
 
  A) give central banks greater freedom in adjusting their economy's level of output.
  B) forever free the central bank from have to adjust the exchange rate to fundamental changes in the economy.
  C) make trade more costly, and thus encourage domestic citizens to buy domestically produced output.
  D) all of the above
  E) none of the above

Question 2

Suppose the capital stock increases by 10 and the number of employed workers increases by 5. Given this information, explain what will happen to output and to output per worker.
 
  What will be an ideal response?


xiaomengxian

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Reply #1 on: Jun 30, 2018
Answer to Question 1

E

Answer to Question 2

The level of output will obviously increase because the amount of inputs has increased. Given that the capital stock increases by an amount greater than the amount of workers, we know that the capital labor ratio has increased. This implies that output per worker has also increased.


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