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When There Is a Temporary Shock to Output (Positive or Negative)

Question 65

Multiple Choice

When there is a temporary shock to output (positive or negative) , what happens to consumption in an open economy?


A) It is unchanged.
B) It changes by exactly the same amount as output.
C) It changes by more than the temporary output gain or loss by a factor of (1 + r*) / r*.
D) It changes by less than the temporary output gain or loss by a factor of r* / (1 + r*) .

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