In the New Keynesian Open Economy Model, Government Spending

question 10

Multiple Choice

In the New Keynesian open economy model, government spending

• A) is an effective stabilization tool with a flexible exchange rate, and an ineffective stabilization tool with a fixed exchange rate.
• B) is an ineffective stabilization tool with a flexible exchange rate, and an effective stabilization tool with a fixed exchange rate; prices are flexible.
• C) is an ineffective stabilization tool with a flexible exchange rate, and an ineffective stabilization tool with a fixed exchange rate; net exports depends on the relative price of foreign goods to domestic goods.
• D) is an effective stabilization tool with a flexible exchange rate, and an effective stabilization tool with a fixed exchange rate.
• E) always requires the support of the central bank.

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Definitions:

Advanced Value

The increase in worth or value of an asset or product due to improvements or enhancements made over time.

Performance Bond

A surety bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor.

Judicial Bond

A type of surety bond required by courts to ensure the fulfillment of a legal action or compensation for possible losses.

Contract

A formal agreement that binds two or more parties together under legal accountability.