1) Consider a small open economy that initially starts in balanced trade. Another, "large" economy does...

1) Consider a small open economy that initially starts in balanced trade. Another, "large" economy does tight fiscal policy. As a result, the world real interest rate will _______ and the small open economy will experience a trade ______.

a. increase; deficit

b. decrease; deficit

c. decrease; surplus

d. increase; surplus

2) In economics, "domestic" means

a. international

b. American

c. in autarky (not trading)

d. actively trading

Expert Solution

1) b. Increase, surplus

This is because the big economy follows fiscal policy in which the government controls the economy by altering government expenditure which triggers the rate of interest. When trade is done between the two economy, the rate of interest will increase and the small economy will benefit.

2) c. In autarky

As domestic means within the country.

Rahul Sunny answered 2 years ago

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