The adjustments required to successfully expand a model of a closed domestic economy into one that accommodates international trade include
A) the explicit addition of net exports in the accounting identity defining aggregate demand.
B) the explicit recognition that net exports depend on both GDP and the exchange rate.
C) the explicit recognition that the exchange rate depends on the domestic real rate of interest.
D) all of the above.
E) none of the above.

Question

Quizplus · Accepted Answer

Expanding a model from a closed domestic economy to one that includes international trade requires adjustments to account for the impact of net exports on aggregate demand, the influence of GDP and the exchange rate on net exports, and the effect of the domestic real rate of interest on the exchange rate.

The Adjustments Required to Successfully Expand a Model of a Closed