In the Two-Period SOE Model with Production, Suppose That the Real

question 5

Multiple Choice

In the two-period SOE model with production, suppose that the real interest rate if there were no trade is greater than the world real interest rate. If the economy is initially closed, and then becomes open,

• A) net exports will be positive.
• B) output will increase.
• C) net exports will be negative.
• D) investment will fall.
• E) government spending will rise.

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Definitions:

Flat

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Proportional

Refers to a relationship between two quantities where they change at the same rate.

Structural

Relating to the basic, fundamental framework or arrangement of something, often implying an inherent or fixed nature.

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