Changes in the Money Supply in an Open Economy, as Compared

question 37

Multiple Choice

Changes in the money supply in an open economy, as compared to a closed economy,

• A)are likely to have a smaller effect on AD because the secondary effect of exchange rates will offset the changes created by monetary disturbances.
• B)are likely to have a greater effect on AD because of the secondary effect that exchange rates have on exports.
• C)are the same in either situation.
• D)affect investment to a greater degree because foreign investors can create new investment in an open economy.
• E)cannot be determined with the available information.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (direct labor, direct materials, and variable overhead) in product costs and expenses fixed overhead as a period cost.

Unit Product Cost

The total cost, including materials, labor, and overhead expenses, divided by the total number of units produced.

Absorption Costing

Absorption costing is a method in accounting that includes all manufacturing costs - both direct and indirect - in the cost of a product.

Variable Costing

An accounting method where only variable production costs are included in product costs, with fixed overhead treated as a period cost.