Question
What is comparative advantage, and what determines who has it?
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Answer
Producing at lower opportunity cost; whoever has the lower opportunity cost.
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Question
What does a balanced-budget multiplier of 1 imply?
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Answer
Equal increases in G and T raise GDP by that same amount.
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Question
How do higher transfer payments affect the budget balance, other things equal?
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Answer
They increase the budget deficit.
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Question
How does a real exchange rate differ from a nominal exchange rate?
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Answer
The real rate adjusts the nominal rate for relative price levels.
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