Question

In: Economics

Which of the following is most likely to restore an economy to full employment, if it...

Which of the following is most likely to restore an economy to full employment, if it is operating below full employment due to a decrease in net exports?

Select one:

a. Devaluation of the domestic currency

b. None of these

c. A decrease in investment in the economy

d. A decrease in the demand for goods and services in the economy

e. An increase in the interest rate

Solutions

Expert Solution

Option

a. Devaluation of the domestic currency

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the devaluation of the domestic currency increases net exports as the prices are lower for foreign buyers.

It increases the aggregate demand and shifts the demand to the right to the full employment level.

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An increase in interest rate decreases investment so the aggregate demand decreases which shifts the AD to the left which increases the recessionary gap in the economy.

Rahul Sunny answered 2 years ago
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