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).

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Definitions:

Economic Decisions

The choices made by individuals, companies, or governments regarding the allocation of resources, investments, and policy formulations to influence the economy.

Ratification Debate

The intense discussion and argument that took place around the adoption of the United States Constitution by the states.

Propertied Men

Individuals who own property, historically granted certain rights and privileges not afforded to those without property, including the right to vote.

Urban Dwellers

People who live in cities or towns, often experiencing lifestyles, challenges, and opportunities distinct from rural life.