In the Long-Run ISLM Model and with Everything Else Held

question 7

Multiple Choice

In the long-run ISLM model and with everything else held constant,the long-run effect of a fall in net exports is to ________ real output and ________ the interest rate.

• A)increase;increase
• B)increase;not change
• C)not change;increase
• D)not change;decrease

---

Definitions:

Opportunity Costs

The cost of forgoing the next best alternative when making a decision.

Production Possibility Frontier

A graph that shows all the highest production potentials for two products, based on a specific set of resources and various factors.

Bowed Out

Describes a curve, typically an indifference curve in economics, that is concave from the perspective of the origin, indicating that as one moves along the curve, the rate of substitution between two goods changes.

Straight Line

A geometric concept representing the shortest distance between two points in a plane, characterized by constant direction and an infinite number of points.