For This Question, Assume That Equilibrium Output Is Determined in the ZZ-

question 45

Multiple Choice

For this question, assume that equilibrium output is determined in the ZZ- Y diagram. Further assume that policy makers' goals are: (1) to achieve balanced trade to achieve the natural level of output, say Yn. Now suppose that the initial level of equilibrium output is equal to Yn (i.e., Y = Yn) and that a trade deficit exists at this initial level of output. Which of the following policy actions would most likely enable the policy makers to achieve their two goals simultaneously?

• A) A decrease in the real exchange rate.
• B) A decrease in taxes and increase in the real exchange rate.
• C) Convince the country's trading partners to pursue policies that will cause an increase in foreign income.
• D) A decrease in government spending.
• E) A decrease in government spending and the real exchange rate.

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Definitions:

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material, labor, and overhead costs.

Purchase Discounts

A deduction from the stated price of goods or services allowed by the seller to the buyer for prompt payment.

Acquisition Cost

The total cost incurred to acquire an asset, including purchase price and all expenses directly tied to the acquisition.

Net Price Method

An accounting approach that calculates the cost of goods sold or purchased after deducting any discounts, rebates, or allowances from the gross price.