Assume the Economy Is in Equilibrium

question 145

Multiple Choice

Assume the economy is in equilibrium. If the interest rate falls, what sequence of events will return the economy to equilibrium?

• A) Total spending rises as investors move funds into foreign assets, causing the exchange rate to rise (depreciate), and the trade balance increases, causing output to rise.
• B) Savers save more to replace lost interest earnings, consumption falls, imports rise, and the trade balance falls, causing output to fall.
• C) Total spending falls, unemployment rises, government transfers increase, inflation rises, and the exchange rate falls (appreciates).
• D) Bond prices rise, causing foreign investment to flow in, causing the exchange rate to fall (appreciate).

---

Definitions:

Physically Demanding

Activities or tasks that require significant physical effort and stamina.

Reasoning

The cognitive process of drawing conclusions from premises or evidence, involving logical thinking and analysis.

Direct Observation

The method of gathering data through the immediate or firsthand witnessing or monitoring of behaviors, actions, or phenomena.

Full Moon

The phase of the moon when it is fully illuminated from Earth's perspective, appearing as a bright, circular disc.