One Method for a Deficit Country to Correct the Situation

question 43

Multiple Choice

One method for a deficit country to correct the situation under a fixed exchange rate system is to

• A)increase aggregate demand with stimulative monetary policy.
• B)increase aggregate supply with tax cuts.
• C)decrease aggregate demand with restrictive fiscal and monetary policy.
• D)decrease aggregate supply with restrictive fiscal policy.

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Definitions:

Marginal Decision Rule

A principle used in economics and decision-making that recommends comparing the additional benefits of a decision or action to its additional costs.

Downward Sloping

Characteristic of a graph indicating that as one variable increases, the other variable decreases, common in demand curves.

Demand

The quantity of a particular good or service that consumers are willing and able to purchase at various prices.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers at those prices.