Answer to Question #63540 in Macroeconomics for Hans

Question

Assume perfect capital mobility and fixed nominal exchange rates. Which of the following statements about the derivation of the AD curve are true ?

Select one or more:
a. A decrease in P raises income. Thus the AD curve has a negative slope.
b. A decrease in P decreases the real exchange rate, which shifts the IS curve to the right. This raises equilibrium income.
c. A decrease in P increases the real exchange rate, which shifts the IS curve to the right. This raises equilibrium income.
d. The demand side equilibrium (for the derivation of the AD curve) is determined by the intersection of the IS and FE curve.

Answer 1

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