In a Two-Country, Two-Good Model, the

question 71

Multiple Choice

In a two-country, two-good model, the

• A) exports of one country must equal the imports of the other country.
• B) exports of one country can exceed the imports of the other country.
• C) exports of one country can be less than the imports of the other country.
• D) terms of trade always occur halfway between the two pretrade equilibrium prices.

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Definitions:

Equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.

Money Demanded

The total amount of money that households and businesses want to hold at a given time, often influenced by interest rates, income levels, and the economic outlook.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, regulation of banks, and ensuring stability of the financial system.

Federal Funds Rate

The rate at which banks exchange federal funds (balances maintained at Federal Reserve Banks) among themselves for overnight loans.