Chapter 13, Problem 5SQ

One method for a deficit country to correct the situation under a fixed exchange rate system is to   a. decrease aggregate supply with restrictive fiscal policy.   b. increase aggregate supply with tax cuts.   c. increase aggregate demand with stimulative monetary policy.   d. decrease aggregate demand with restrictive fiscal and monetary policy.

In the New Keynesian open economy model with a flexible exchange​ rate, a decrease in tariffs imposed by the domestic government on imports causes         A. an exchange rate depreciation.   B. an increase in investment.   C. a reduction in aggregate output.   D. no change in output.   E. an increase in aggregate output.