In the Mundell-Fleming Model with Flexible Exchange Rates, an Increase

question 83

Multiple Choice

In the Mundell-Fleming model with flexible exchange rates, an increase in the price level results in a(n) ______ in the real exchange rate and a(n) ______ in net exports.

• A) increase; increase
• B) increase; decrease
• C) decrease; decrease
• D) decrease; increase

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Definitions:

Average Cost

The total cost of production divided by the number of units produced, indicating the cost per unit.

Consumer Surplus

The bifurcation between what a consumer wishes to pay for a service or good, and what ends up being spent.

Producer Surplus

The difference between what producers are willing to sell a good for and the actual market price of the good.

Deadweight Loss

Deadweight loss refers to the loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable, often due to market distortion such as taxes or subsidies.