Fiscal Policy Can Stabilize Output in the Coordination Failure Model

question 45

Multiple Choice

Fiscal policy can stabilize output in the coordination failure model by

• A) dampening the fluctuations in the business cycle.
• B) controlling government spending.
• C) lowering the real interest rate.
• D) eliminating multiple equilibriums.
• E) eliminating sunspots.

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Definitions:

Currency Values

The worth of one country's currency in terms of another's, influenced by economic conditions and political stability.

Currency Cross Rate

The exchange rate between two currencies, calculated based on their common exchange rates with a third currency, usually the US dollar, without needing direct exchange between the two currencies.

Exchange Rate

The price at which one currency can be exchanged for another currency.

Third Currency

A currency used as an intermediary for trading between two currencies that are not directly exchangeable.