In an Open Economy with Flexible Exchange Rates, Monetary Policy

question 101

Multiple Choice

In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the ________ and affects net exports by changing the ________.

• A)inflation rate; unemployment rate
• B)exchange rate; real interest rate
• C)growth of domestic real GDP; growth of foreign real GDP
• D)real interest rate; exchange rate

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Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the profit beyond the normal return on investment.

Marginal Decision Rule

A principle stating that an action should be taken if, and only if, the marginal benefits are greater than or equal to the marginal costs.

MR

Short for Marginal Revenue, it refers to the extra revenue that an organization receives from selling one more unit of a good or service.

Maximizing Profit

The process a firm adopts to establish the optimal price and quantity for maximal profit.