Analyzing the effectiveness of monetary policy under flexible exchange rate regime.
a. A trade deficit occurs when the government spends more than it receives in tax revenue.
b. In an open, mixed economy, the equilibrium level of GDP occurs when planned saving equals planned investment.
c. An increase in interest rates in the rest of the world will lead to a stronger dollar.
d. Under a fixed exchange rate system with global capital flows, monetary policy is ineffective. As under a flexible exchange rate system, monetary policy is typically more effective than fiscal policy in increasing real GDP.