The correct option for defining the effect of falling income on the demand for money and the nominal interest rate.
Answer to Problem 2MCQ
Option b is correct.
Explanation of Solution
Explanation for the correct option:
b.
As income has fallen and a country is in recession, demand for money would decrease as there is no output production, and there is an overall fall in the economic
Explanation for incorrect options:
a.
Due to the recession, there will be a decrease in demand for money as well as a decrease in the nominal interest rate. Therefore, option a is the incorrect answer.
c.
During the recession, there will be no increase in demand for money as investors are not investing more. Therefore, option c is incorrect.
d.
Nominal interest rate will decrease instead of increase as there is a recession in the economy. Therefore, option d is incorrect.
e.
To cope with the falling income in Country M, one needs to reduce the nominal interest rates. Therefore, option e is incorrect.
International trade: International trade is an exchange of goods and services across nations. This is due to globalization and
Chapter 45 Solutions
Krugman's Economics For The Ap® Course
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