Question

Milovia is a small open economy. The general price level in the economy has been increasing at a rate of about 7.5 percent each year. Jane Wilson, an industry analyst, is of the opinion that such high inflation is adversely affecting aggregate demand in the economy and therefore its ability to grow. Her colleague, Harry Gomes, however, disagrees. According to Harry, some amount of inflation is unavoidable in a growing economy. Higher prices for products help to increase the level of corporate profits and induce firms to increase aggregate output. Which of the following, if true, will support Harry's view that aggregate output can increase in spite of domestic inflation? 0 A. Most investors in Milovia find it more lucrative to invest in foreign assets. O B. Stock prices of some of the leading firms in the economy have been continuously falling for the past year. O C. The Milovian government increased personal income tax rates last year D. The Milovian currency recently depreciated in the foreign exchange market. OE. The banking industry is strictly regulated by the central bank of Milovia.

Answer 1

Ans) the correct option is D) The milovian currency recently depreciated in the foreign exchange market