Imagine That the Economy Is at a Point That Is

question 39

Multiple Choice

Imagine that the economy is at a point that is below both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is TRUE?

• A) The economy will stay at this level in the short run.
• B) The exchange rate will first rise to a point on the AA schedule.
• C) The exchange rate will first rise to a point on the DD schedule.
• D) The AA-DD equilibrium will shift to the position of the economy.
• E) The output level will first increase to a position on the DD schedule.