An Increase in Total Factor Productivity Has Different Effects in an Open

question 54

Multiple Choice

An increase in total factor productivity has different effects in an open economy relative to a closed economy because

• A) the real interest rate does not change in the open economy.
• B) the change in the real interest rate involves a substitution effect only in the open economy.
• C) the real interest rate does not change in the closed economy.
• D) the real interest rate decreases in the open economy and increases in the closed economy.
• E) it is a positive income effect in the closed economy and a negative one in the open economy.

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Definitions:

Financial Liability

An obligation to deliver cash or another financial asset to another entity.

Legally Enforceable Right

A right that is recognized by law and can be upheld in a court.

Set Off

Set off is a legal mechanism allowing parties to mutually cancel out monetary claims against each other by offsetting debts, thereby simplifying payment processes.

Financial Asset

An asset that derives value because of a contractual claim, such as cash, stocks, bonds, and bank deposits.