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Author Question: A change in which of the following causes a shift in the IS curve? A) autonomous investment B) ... (Read 203 times)

serike

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on: Jun 30, 2018
A change in which of the following causes a shift in the IS curve?
 
  A) autonomous investment
  B) autonomous net exports
  C) taxes
  D) all of the above
  E) none of the above

Question 2

How does the open-economy IS-MP model incorporate net exports with a floating exchange rate system?
 
  What will be an ideal response?


janeli1

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

D

Answer to Question 2

The impact of the real interest rate on the floating exchange-rate system makes total expenditures more responsive to changes in the real interest rate, causing the IS curve to be more elastic (flatter). For example, an increase in the real interest rate increases the exchange rate, decreasing net exports. So, the higher real interest rate decreases not only investment and consumption expenditures, but also net exports.


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