Author Question: In an economy open to international trade ________. A) saving equals investment in equilibrium ... (Read 37 times)

jman1234 · **on:** Jun 30, 2018

In an economy open to international trade ________.

A) saving equals investment in equilibrium
B) saving is the difference between net exports and investment
C) saving equals investment as long as the economy has no exports
D) saving equals investment as long as NX=0
E) none of the above

Question 2

What are the effects of an expansionary monetary policy on interest rates and output in an open economy with floating exchange rates?

What will be an ideal response?

nyrave · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

With an expansionary monetary policy in an open economy with floating exchange rates, the MP curve shifts down, which leads to a higher output gap and decreases the real interest rate. The lower real interest rate makes investment less attractive in the United States, so net capital outflows increase. The dollar depreciates in value, and net exports and output increase.