CHAPTER 27
PRICES AND OUTPUT IN THE OPEN ECONOMY:
Aggregate Supply and Demand
B. Multiple-Choice Questions
7. Other things equal, with imported intermediate goods, an increase in foreign prices will
lead to a __________ shift in a home country’s short-run aggregate supply curve and
__________ shift in the home country’s aggregate demand curve.
8. Expansionary aggregate demand-oriented fiscal policy leads, ceteris paribus, to
a. a short-run fall in both income and the price level.
9. Other things equal, a rise in foreign interest rates leads to __________ in the home
country’s equilibrium level of income and to __________ in the home country’s price
level in the short run.
10. If a country’s currency depreciates in the foreign exchange markets, the result will be a
shift of the aggregate demand curve __________; in addition, if intermediate goods are
an important component of the country’s imports, the short-run aggregate supply curve
__________.
11. In considering the slope of the open-economy aggregate demand curve (AD), a valid
general statement is that, other things equal, the open-economy AD __________.
12. According to the New Classical economists, with rational expectations, an anticipated
increase in the money supply will
13. An increase in the long-run equilibrium level of income can result from
14. Stagflation can result
15. In the AD/AS framework, when the economy is in long-run equilibrium,
16. In a situation of stagflation, the use of aggregate demand-oriented macro policy to
address the problem of the rising price level would, at least in the short run, __________
the price level and __________ the level of output in the economy.
17. In the aggregate demand/aggregate supply framework
d. only monetary policy has a short-run impact on income and employment under fixed
exchange rates.
18. If the AD curve intersects the short-run aggregate supply curve to the left of the long-run
aggregate supply curve, under flexible exchange rates, then the long-run equilibrium
position
19. Suppose that a partner country autonomously increases its demand for the home
country’s exports. With a fixed exchange system, this increase in export demand
__________; with a flexible exchange rate system, this increase in export demand
__________.
20. When a country is in equilibrium on its long-run aggregate supply curve, the actual price
level facing economic agents
21. Appreciation of the domestic currency will
22. An expansion of the domestic money supply
23. The derivation of the aggregate demand curve (AD) in the closed economy builds upon
the fact that, as the domestic price level rises, other things equal, the equilibrium level of
income in the IS/LM diagram __________.
24. In a situation of stagflation, the use of aggregate demand-oriented macro policy to
address the problem of unemployment would, at least in the short run, __________ the
price level and __________ the level of output in the economy.
25. If actual prices in a country are less than the expected prices in the country, then the
country’s
26. The derivation of the aggregate demand curve (AD) in the open economy builds upon the
fact that, as the price level rises, other things equal,
27. If exchange rates are fixed, an increase in the money supply will lead to __________ in
the equilibrium level of income and to __________ in the price level.
28. The derivation of the aggregate demand curve (AD) in the closed economy builds upon
the fact that, as the domestic price level rises, other things equal, the