Imagine That the Economy Is at a Point on That

question 5

Multiple Choice

Imagine that the economy is at a point on 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.

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Definitions:

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade.

Increased Unemployment

A rise in the percentage of the labor force that is without work but available for and seeking employment.

Social Security

A government program that provides financial assistance to people with an inadequate or no income, primarily the elderly, disabled, and unemployed.

Long-term Solvency

The ability of an entity, typically a government or business, to meet its long-term financial liabilities and obligations.