Figure 32-5 Refer to the Following Diagram of the Open-Economy Macroeconomic Model

question 71

Multiple Choice

Figure 32-5
Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow.
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Graph (a)
Graph (b) Graph (c)
-Refer to Figure 32-5. Suppose that initially the economy is in equilibrium at r₁ (point d) and e₃ (point i) . If the government removes import quotas, the exchange rate will move to

• A)e₅.
• B)e₄.
• C)e₂.
• D)e₁.

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Definitions:

Selling

The act of offering goods or services in exchange for money or other goods and services.

Trade Surplus

A situation where the value of a country's exports exceeds the value of its imports over a certain period of time.

Net Capital Outflow

The difference between the domestic country's purchase of foreign assets and foreign purchases of the domestic country's assets over a certain period, often reflecting the flow of funds abroad.

Domestic Investment

Expenditures made within a country by individuals, businesses, or the government for the purpose of acquiring goods and services to increase future production.