5 Questions
What happens to the trade balance when there is an increase in domestic disposable income?
It may improve due to increased domestic demand for goods and services
How does a decrease in the real exchange rate affect the trade balance?
It may improve due to increased competitiveness of domestic goods in foreign markets
What is the impact of a leftward shift in the IS curve?
Reduction in interest rates and potential improvement in trade balance
How does a contraction in monetary supply impact the currency value?
Leads to higher interest rates and currency appreciation
What defines the real exchange rate?
Ratio of domestic cost of foreign goods basket to domestic goods basket
Test your understanding of equilibrium in goods and forex markets, as well as the impact of factors such as inflation, interest rate changes, and capital controls. Explore the concept of real exchange rate and how it is affected by price levels and exchange rates. Assess your knowledge of temporary government policies and their short-term effects on the economy.
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