To maintain a fixed exchange rate, in response to an increase in ...

[shenderson6]

To maintain a fixed exchange rate, in response to an increase in the government budget deficit the central bank must
 
  a. sell foreign currency from reserves.
  b. buy foreign currency.
  c. raise taxes.
  d. raise government spending.
  e. pass a law that increases the exchange rate.

Question 2

If the savings rate of Country A increases from 10 to 20 and technology growth is zero, then the neoclassical model predicts that in the steady state
 
  a. the capital-to-labor ratio will not grow in the long-run but higher than it is now.
  b. the capital-to-labor ratio will grow 10 faster.
  c. the growth rate of output will be permanently higher.
  d. the level of output will be permanently higher.
  e. a and d.

[af]

Answer to Question 1

B

Answer to Question 2

E