In the New Keynesian Open Economy Model with a Fixed

question 48

Multiple Choice

In the New Keynesian open economy model with a fixed exchange rate, an increase by the domestic government in tariffs on imports results in

• A)a decline in the interest rate.
• B)an increase in aggregate output.
• C)a reduction in the money supply.
• D)an increase in investment.
• E)a decline in aggregate output.

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Definitions:

Level of Inventory

The quantity of goods that a company has in stock at a specific time.

Borrowing Money

The act of receiving funds from a lender under the agreement to repay the principal amount along with interest or fees over a defined period.

Interest Rate

The percentage of a sum of money charged for its use, often noted annually, on loans or earned on deposits.

Corporate Bonds

Debt securities issued by corporations to finance their operations, which typically offer a fixed rate of return over a defined period of time.