For this question, assume that there is a simultaneous increase in government spending and monetary contraction. In a flexible exchange rate regime, we know with certainty that such a policy mix will cause which of the following?
A) an increase in the domestic interest rate
B) an increase in the exchange rate
C) a reduction in net exports
D) all of the above
E) only A and C
Question 2
Assume that employment increases by 3. Holding all other factors constant, we know with certainty that which of the following will occur?
A) output will increase by 3
B) output per capita will increase by 3
C) output will increase by less than 3
D) the capital labor ratio will increase
E) none of the above
