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Questions and Answers
What happens to the trade balance when there is an increase in domestic disposable income?
What happens to the trade balance when there is an increase in domestic disposable income?
- It remains unaffected as domestic disposable income only impacts savings
- It may improve due to increased domestic demand for goods and services (correct)
- It may worsen due to decreased domestic demand for foreign goods
- It may improve due to decreased domestic demand for foreign goods
How does a decrease in the real exchange rate affect the trade balance?
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 (correct)
- It may improve due to increased demand for foreign goods
- It may worsen due to decreased competitiveness of domestic goods in foreign markets
- It remains unaffected as real exchange rate changes have no impact on trade balance
What is the impact of a leftward shift in the IS curve?
What is the impact of a leftward shift in the IS curve?
- Increase in interest rates and potential improvement in trade balance
- Reduction in interest rates and potential improvement in trade balance (correct)
- Increase in interest rates and potential worsening of trade balance
- No impact on interest rates but potential worsening of trade balance
How does a contraction in monetary supply impact the currency value?
How does a contraction in monetary supply impact the currency value?
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What defines the real exchange rate?
What defines the real exchange rate?
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