Suppose the exchange rate is flexible. Which of the following best describes how a new equilibrium is established if there is an increase in the use of credit cards? A) The demand for goods increases. Firms respond by increasing output. As output increases demand for money increases. B) The demand for goods increases. Firms respond by increasing output. As output increases demand for money falls. C) The demand for money increases, which reduces interest rates. As interest rates fall demand for goods increase. D) The demand for money falls, which reduces interest rates. As interest rates fall demand for goods increase.
Suppose the exchange rate is flexible. Which of the following best describes how a new equilibrium is established if there is an increase in the use of credit cards? A) The demand for goods increases. Firms respond by increasing output. As output increases demand for money increases. B) The demand for goods increases. Firms respond by increasing output. As output increases demand for money falls. C) The demand for money increases, which reduces interest rates. As interest rates fall demand for goods increase. D) The demand for money falls, which reduces interest rates. As interest rates fall demand for goods increase.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose the exchange rate is flexible. Which of the following best describes how a new equilibrium is established if there is an increase in the use of credit cards? A) The
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