The Vertical Long-Run Aggregate Supply Curve Satisfies the Classical Dichotomy

question 33

Multiple Choice

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:

• A)the labour supply.
• B)the supply of capital.
• C)the money supply.
• D)technology.

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Definitions:

Foreign Exchange Reserves

Assets held by central banks in foreign currencies, used to back liabilities on their own currency as well as to influence monetary policy.

Fixed Exchange Rate

A system where the government or central bank sets the official exchange rate in relation to the currency of another nation or the value of gold.

Flexible Exchange Rate

A rate of exchange that is determined by the international demand for and supply of a nation’s money and that is consequently free to rise or fall because it is not subject to currency interventions. Also referred to as a “floating exchange rate.”

Fixed Exchange Rate

A currency system where the value of a currency is pegged against another currency, a basket of currencies, or another measure of value.