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

question 33

Essay

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 (i.e.,NX = 0); and (2)to achieve a target level of output,say Yᵀ.Now,suppose that the initial level of equilibrium output is equal to Yᵀ (i.e.,Y = Yᵀ)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 reduction in government spending
B)convince the country's trading partners to pursue policies that will cause an increase in foreign income (Y*)
C)a reduction in the real exchange rate
D)a reduction in taxes
E) a simultaneous increase in government spending and reduction in the real exchange rate
F) none of the above

• A)a reduction in government spending
• B)convince the country's trading partners to pursue policies that will cause an increase in foreign income (Y*)
• C)a reduction in the real exchange rate
• D)a reduction in taxes
• E) a simultaneous increase in government spending and reduction in the real exchange rate
• F) none of the above

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Definitions:

Market Return

The total return on an investment, reflecting both capital gains and dividends, over a specific period.

Required Return

The return a investor expects to earn on an investment, taking into account the risk associated with it.

Selling

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

Dividend

A portion of a company's earnings distributed to shareholders as a return on their investment.