4)

Under consideration is a small open economy. Take the exchange rate of the currency next year as a given external dimension.

Assume that initially output elasticity is zero and inflation is at target. Then comes an external shock that lowers investment (I) so that there is a contraction in demand.

In which case will the effect on the output voltage be least?

Group of response options

The country has a floating exchange rate and the central bank lowers interest rates until inflation is equal to the target

The country has a fixed exchange rate

The country has a floating exchange rate and the central bank keeps the money supply fixed

The country has a floating exchange rate and interest rates are kept fixed

5)

Consumers in any economy spend 60% of their income on food and 40% on housing. This year, the price of food will increase by 10% and the price of housing by 20%. What is the inflation rate?

Group of response options

14%

10%

6%

15%

11%

16%

6)

Assume that Ricardo's theorem of equivalence holds. Also assume that initially there is no budget deficit and that the current account balance is zero.

What is the effect of a tax increase along with unchanged government spending in these circumstances?

Group of response options

Budget surplus and unchanged current account balance

Budget deficit and current account deficit

Budget surplus and trade surplus

Budget surplus and current account deficit