Foundations of Economics Exam Questions
Course Introduction
Foundations of Economics provides an introduction to the fundamental principles and concepts of microeconomics and macroeconomics. This course explores how individuals, firms, and governments make decisions regarding the allocation of scarce resources, and examines the functioning of markets, the determination of prices, and the roles of supply and demand. It also provides an overview of key macroeconomic indicators such as GDP, inflation, and unemployment, and discusses policy measures that influence economic growth and stability. Students will develop critical thinking skills and an understanding of the economic factors that shape societies and influence everyday life.
Recommended Textbook
Economics 15th Canadian Edition by Christopher
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T.S. Ragan
Chapter 1: Economic Issues and Concepts
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Sample Questions
Q1) If there is always a three-for-one trade-off between the production of goods X and Y,then the production possibilities boundary for X and Y is
A)a downward-sloping curve convex to the origin.
B)semi-circular.
C)a downward-sloping straight line.
D)a downward-sloping straight line that is broken at one point.
E)a downward-sloping curve concave to the origin.
Answer: C
Q2) Income redistribution in a mixed economy
A)is supported by all individuals.
B)rarely occurs.
C)is only accomplished through government intervention.
D)risks reducing individual incentives to work and produce.
E)is not allowed.
Answer: D
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3
Chapter 2: Economic Theories,Data,and Graphs
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Q1) Suppose that over a 12-month period,Sonali's income (Y)rises from $27 000 to $35 000 per year and,as a result,her spending on travel (T)increases from $1500 to $2500 per year.Assume there is a linear relation between the two variables,Y and T.What is the marginal response in T to a change in Y?
A)8
B)4
C)0
D)0.25
E)0.125
Answer: E
Q2) When an increase in one variable is associated with an increase in a second variable,the two variables are
A)proportionally related.
B)inversely proportionally related.
C)positively related.
D)equivalent.
E)negatively related.
Answer: C
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Chapter 3: Demand, Supply, and Price
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Q1) If the legal beer-drinking age is raised from 18 to 21,the changes to the equilibrium price and quantity of beer are likely to be that
A)price rises and quantity rises.
B)price falls and quantity rises.
C)price rises and quantity falls.
D)price falls and quantity falls.
E)no change in price or quantity occurs.
Answer: D
Q2) Given a positively sloped supply curve,a rise in the demand for that commodity causes
A)a shortage of other goods.
B)a fall in sales of that commodity.
C)an increase in both the equilibrium price and the equilibrium quantity exchanged.
D)a decrease in the equilibrium price and an increase in the equilibrium quantity exchanged.
E)a decrease in both the equilibrium price and the equilibrium quantity exchanged. Answer: C
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Chapter 4: Elasticity
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Q1) If the total expenditure on cars increases when the price of cars rises,the price elasticity of demand for cars is
A)greater than one (demand is elastic).
B)less than one (demand is inelastic).
C)equal to one (demand is unit elastic).
D)exactly zero.
E)not determinable from the information given.
Q2) If household income increases by 50% and desired household expenditure on vacation travel increases by 15%,the price elasticity of demand for vacation travel is
A)elastic.
B)inelastic.
C)unity.
D)positive.
E)not determinable from the information given.
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Chapter 5: Price Controls and Market Efficiency
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Q1) In competitive markets,binding price floors and binding price ceilings lead to A)a reduction in deadweight loss.
B)fairer prices for consumers and producers,and therefore are better for society as a whole.
C)an overall increase in economic surplus,and therefore to market efficiency.
D)a maximization of economic surplus.
E)an overall reduction in economic surplus,and therefore to market inefficiency.
Q2) Refer to Figure 5-8.After the imposition of a milk quota at quantity Q<sub>1</sub>,economic surplus is represented by
A)areas 1,2 and 5.
B)areas 3 and 4.
C)areas 1,2 and 3.
D)areas 1,2,3,4,5,6 and 7.
E)areas 2,3,5 and 6.
Q3) The surpluses associated with a binding price floor will be the smallest when
A)both supply and demand are highly elastic.
B)both supply and demand are highly inelastic.
C)supply is highly elastic and demand is highly inelastic.
D)supply is highly inelastic and demand is highly elastic.
E)both supply and demand are unit elastic.
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Chapter 6: Consumer Behaviour
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Q1) In which of the following situations will an individual's purchasing power be unaffected?
A)money income doubles and the prices of all goods and services are cut in half
B)money income remains constant and the prices of all goods and services double
C)money income is cut in half and the prices of all goods and services double
D)money income is cut in half and the prices of all goods and services remains constant
E)money income doubles and the prices of all goods and services double
Q2) Refer to Figure 6-1.The total utility from consuming two units of the good is A)20.
B)40.
C)60.
D)80.
E)140.
Q3) Refer to Figure 6-1.The consumer's total utility is
A)increasing at an increasing rate.
B)increasing at a decreasing rate.
C)decreasing at an increasing rate.
D)decreasing at a decreasing rate.
E)constant.
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Page 8
Chapter 7: Producers in the Short Run
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Q1) Refer to Table 7-4.Diminishing marginal productivity of labour is first observed when the firm changes the amount of labour hired from
A)0 to 1 unit.
B)1 to 2 units.
C)2 to 3 units.
D)3 to 4 units.
E)4 to 5 units.
Q2) Refer to Table 7-3.The average total cost when producing 150 units of output is approximately
A)33 cents.
B)40 cents.
C)67 cents.
D)80 cents.
E)$1.50.
Q3) An example of debt financing for any form of business organization is
A)issuing new stock.
B)buying back bonds.
C)borrowing from a bank.
D)using undistributed profits.
E)buying back previously issued stock.
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Chapter 8: Producers in the Long Run
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Q1) The creation of a new product is called
A)process innovation.
B)a rise in productivity.
C)creative destruction.
D)investment.
E)product innovation.
Q2) Suppose Farmer Smith hires 4 workers and leases 2 tractors and 15 hectares of farmland for one growing season,and produces 120 000 bushels of crop.The next year he hires 8 workers and leases 4 tractors and 30 hectares of farmland,and produces 210 000 bushels of crop.This firm (the farmer)is exhibiting ________ returns to scale.
A)decreasing
B)increasing
C)constant
D)marginal
E)variable
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10
Chapter 9: Competitive Markets
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Q1) Suppose XYZ Corp.is producing and selling disposable wooden chopsticks in a perfectly competitive market.The market price is $0.04 per unit and the firm is selling 1 million units per month.Now suppose the firm increases its stated price to $0.05 per unit.According to the theory of perfect competition,the result will be
A)total revenue for this firm will increase,but by less than $10 000 per month.
B)total revenue will increase from $40 000 to $50 000 per month.
C)total revenue will decrease from $50 000 to $40 000 per month.
D)total revenue for this firm will fall dramatically,perhaps to zero.
E)no change in the firm's total revenue.
Q2) Refer to Table 9-2.If the firm is producing at an output level of 6 units,the ATC is ________ and the AVC is ________.
A)$55; $16.67
B)$38.33; $16.67
C)$80; $55
D)$55; $80
E)$71.67; $55
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Page 11
Chapter 10: Monopoly, cartels, and Price Discrimination
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Q1) The average revenue curve for a single-price monopolist
A)is a horizontal line,equal to the price of its product.
B)lies below its demand curve.
C)coincides with its demand curve.
D)slopes upward to the right.
E)does not exist.
Q2) Which of the following statements describes a major difference between monopoly and perfect competition?
A)Perfectly competitive firms cannot maintain positive economic profits in the long run,whereas monopolists can.
B)Monopolists do not consider consumer demand when choosing price and output levels.
C)Monopolistic firms tend to maximize revenue while perfectly competitive firms maximize profit.
D)Monopolistic firms emphasize cost minimization whereas perfectly competitive firms emphasize profit maximization.
E)Perfectly competitive firms can never earn economic profits; monopolistic firms always earn economic profits.
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Chapter 11: Imperfect Competition and Strategic Behaviour
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Q1) Refer to Table 11-3.From the payoff matrix we can infer that A)it is optimal for Firm A to produce 1000 units of output regardless of what Firm B is doing.
B)both firms are indifferent between an equilibrium (Produce 1000 units,Produce 1000 units)and (Produce 2000 units,Produce 2000 units).
C)it is optimal for Firm A to produce 2000 units of output regardless of what Firm B is doing.
D)it is optimal for Firm B to produce 1000 units of output regardless of what Firm A is doing.
E)there is no Nash equilibrium in the game.
Q2) Refer to Figure 11-2.A perfectly competitive firm with zero economic profits is depicted in diagram
A)A.
B)B.
C)C.
D)D.
E)B or D
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Chapter 12: Economic Efficiency and Public Policy
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Q1) Refer to Figure 12-1.Suppose each of Firms A,B,and C are producing 500 kilos of potatoes.Is this industry productively efficient?
A)No,because the marginal cost curve for each firm has a different slope.
B)Yes,because output is equated for all firms.
C)No,because each firm could easily produce more than 500 kilos.
D)No,because marginal costs are not equated for all firms.
E)It is not possible to say whether this industry is productively efficient because we do not know the market price of the product.
Q2) A regulated monopoly that faces rising long-run costs (at its current level of output)and which is forced to price its output at average cost will provide
A)less output than what is socially optimal.
B)more output than what is socially optimal.
C)the socially optimal amount of output.
D)more output than what can be absorbed by the market.
E)so little output that there will be a shortage.
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14
Chapter 13: How Factor Markets Work
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Q1) Consider a perfectly competitive labour market for video-game designers.Which of the following will shift the demand curve for these workers to the right?
1)an increase in the equilibrium wage rate for video-game designers; 2)a decrease in the market price of video games;
3)new software that improves the design process.
A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3
Q2) Refer to Table 13-2.The marginal product of the 7th unit of the factor is A)-8.
B)0.
C)8.
D)162.
E)170.
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Page 15
Chapter 14: Labour Markets and Income Inequality
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Sample Questions
Q1) Certain professions limit the number of students who are eligible to enroll in their programs in university - engineering,architecture,dentistry,and law,for example.What is the predicted effect of such a policy in each of these professions?
A)An increase in supply and a wage that is lower than it otherwise would be.
B)A reduction in supply and a wage that is lower than it otherwise would be.
C)An increase in supply and a wage that is higher than it otherwise would be.
D)A reduction in supply and a wage that is higher than it otherwise would be.
E)These professions are a relatively small portion of the labour market and so there will be no detectible change in wages.
Q2) One possible reason for wage differentials is that
A)there are competitive forces operating in labour markets.
B)discrimination affects labour-market outcomes.
C)working conditions are the same for most jobs.
D)workers have more-or-less equal skills.
E)there is only a single national labour market.
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Chapter 15: Interest Rates and the Capital Market
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Q1) Refer to Table 15-1.A,B,and C represent possible purchases of physical capital,each offering a stream of payments as indicated in the table.There are no payments beyond Year 3.The interest rates in each year are also specified in the table.What is the present value (at the beginning of Year 1)of asset C?
A)2590.67
B)$3000
C)$3150
D)$2722.97
E)$2634.70
Q2) A firm's demand for physical capital leads to its ________ and a household's supply of saving leads to its ________.
A)demand for financial capital; supply of financial capital
B)demand for stocks; supply of stocks
C)lending behaviour; borrowing behaviour
D)negative effect on the interest rate; positive effect on the interest rate
E)demand for bonds; supply of bonds
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Chapter 16: Market Failures and Government Intervention
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Q1) Refer to Figure 16-3.Assume there are two types of firms in this region - beekeepers that produce honey and orchard keepers that produce peaches.The bees provide a benefit to the orchard keepers by pollinating their peach trees.If MB<sub>2</sub> represents the social marginal benefit of honey,the external benefit associated with producing one unit of honey is
A)$1.
B)$2.
C)$3.
D)$4.
E)$5.
Q2) A good example of a product that is both nonexcludable and nonrivalrous is A)grazing land.
B)public information.
C)electricity.
D)food.
E)natural gas.
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18
Chapter 17: The Economics of Environmental Protection
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Sample Questions
Q1) Zero environmental damage is probably
A)technologically possible and economically efficient.
B)technologically possible but not economically efficient.
C)economically efficient but not technologically possible.
D)neither technologically possible nor economically efficient.
E)necessary if the human race is to survive.
Q2) A paper mill discharges chemicals into a river which pollutes the shores of a downstream resort area.The private marginal cost,social marginal cost,and marginal benefit associated with the production of paper are given by the following equations:
MC<sub>P</sub> = 5 + Q
MC<sub>S</sub> = 10 + 2Q
MB = 35 - 0.5Q.
The marginal external cost at the competitive free-market equilibrium is A)5.
B)10.
C)15.
D)20
E)25.
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Chapter 18: Taxation and Public Expenditure
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Q1) Tax and other revenues collected by all levels of government amounted to approximately what proportion of Canada's Gross Domestic Product (GDP)in 2014?
A)8%
B)18%
C)28%
D)38%
E)48%
Q2) Refer to Figure 18-1.A lump-sum tax is illustrated by curve(s)
A)A and B.
B)B and C.
C)C and D.
D)B only.
E)D only.
Q3) An example of a regressive tax in Canada is
A)any one of the provincial sales taxes.
B)the federal income tax.
C)the corporate income tax.
D)the provincial income taxes.
E)the typical property taxes in Canadian cities and towns.
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Page 20
Chapter 19: What Macroeconomics Is All About
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Q1) Why is real income for an average Canadian today so much higher than it was for an average Canadian 100 years ago?
A)Because of the increase in the labour force due to rising population,immigration and the increase in female labour-force participation.
B)Primarily because productivity per worker is so much higher today than in the past.
C)Because inflation has been maintained at relatively low levels throughout that time.
D)Because free-trade agreements have vastly increased real incomes.
E)Because the life span of the average worker has increased from about 55 years to about 80 years over that time period.
Q2) If the Consumer Price Index changes from 120 in the year 2012 to 126 in the year 2014,the average rate of inflation per year over this two-year period is approximately A)6%.
B)5%.
C)3%.
D)2.5%.
E)1.5%.
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Chapter 20: The Measurement of National Income
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Q1) If nominal GDP in some year is $3800 and the GDP deflator for the same year is 152,then the real GDP for that year is
A)$2280.
B)$2500.
C)$3500.
D)$3800.
E)$5776.
Q2) In national-income accounting,which of the following transactions by households is considered to be an investment expenditure?
A)the purchase of an iPhone
B)the purchase of a government bond
C)the purchase of a Guaranteed Investment Certificate (GIC)
D)payment for the construction of a custom-built new home
E)the purchase of an imported car
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22
Chapter 21: The Simplest Short-Run Macro Model
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Q1) Refer to Figure 21-3.Assuming AE<sub>0</sub> is the prevailing aggregate expenditure function,the distance 0A is a measure of
A)aggregate expenditure at equilibrium national income.
B)autonomous desired expenditures.
C)induced expenditures.
D)desired saving.
E)desired investment.
Q2) The marginal propensity to save refers to the A)additional saving that occurs out of an additional dollar of income.
B)additional saving that occurs out of an additional dollar of investment.
C)total saving divided by a change in income.
D)change in saving divided by total income.
E)additional saving that occurs over time.
Q3) Total desired saving divided by total income is called the A)average propensity to consume.
B)average propensity to save.
C)average propensity to spend.
D)marginal propensity to save.
E)total propensity to save.
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Page 23
Chapter 22: Adding Government and Trade to the Simple Macro Model
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Q1) Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.Equilibrium national income is
A)560.00.
B)888.89.
C)1142.85.
D)1302.33.
E)1513.50.
Q2) In an open economy with government and demand-determined output,an increase in the equilibrium level of national income could be caused by
A)an increase in taxes at all levels of income.
B)an increase in the desired level of imports at all levels of income.
C)a decrease in desired consumption at all levels of income.
D)a decrease in the desired level of saving at all levels of income.
E)a decrease in government purchases.
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Chapter 23: Output and Prices in the Short Run
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Q1) Which of the following would cause a positive aggregate demand shock,but leave the aggregate supply curve unaffected?
A)A free trade agreement between Canada and Europe that leads Canadian businesses to increase investment expenditures.
B)A severe drought lasting for six months that destroys agricultural and forestry production.
C)A medical report confirming that improved health for Canadian workers caused fewer lost days of production.
D)An improvement in the computer literacy of workers.
E)A substantial increase in world oil prices.
Q2) Over the horizontal range of the economy's AS curve (assuming such a range exists),a rightward shift of the AD curve will result in
A)an increase in prices and no change in real GDP.
B)an increase in real GDP and no change in prices.
C)an increase in both real GDP and prices.
D)a decrease in both real GDP and prices.
E)a decrease in real GDP but no change in prices.
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Chapter 24: From the Short Run to the Long Run: The Adjustment of Factor Prices
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Q1) Suppose the economy is experiencing a significant recessionary gap,but it has taken the government six months to determine that it will change fiscal policy.This is an example of
A)an execution lag.
B)fine tuning.
C)gross tuning.
D)a decision lag.
E)automatic fiscal stabilizers.
Q2) Refer to Table 24-1.How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?
A)The size of the output gap is the same in Economies A and E,but wages are rising in A and falling in E.
B)The output gap is larger in Economy A,yet wages are changing more slowly.
C)The output gap is much larger in Economy E,so wages are changing at a faster rate.
D)The size of the output gap is the same in Economies A and E but wages are falling more slowly in A than they are rising in E.
E)There is insufficient data with which to observe the adjustment asymmetry.
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Chapter 25: Long-Run Economic Growth
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Q1) Economic growth is often associated with structural change in the economy,and this change can present difficult policy challenges to governments.Which of the following government policies would be most useful at addressing the social costs of economic growth?
A)expansionary monetary policy
B)the imposition of trade restrictions to protect Canadian jobs
C)subsidies directed at Canadian manufacturing firms
D)worker re-training and education programs
E)reducing income taxes
Q2) Real GDP is not a good measure of average material living standards because
A)it is biased by the changes in the inflation rate.
B)it excludes the role of imported goods.
C)it does not take into account the size of the population.
D)it is sensitive to the base year chosen in its calculation.
E)the price level may be changing,which affects what people can afford to buy.
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Chapter 26: Money and Banking
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Q1) Suppose you come into possession of two "silver" dollars,one minted in the 1950s which contains a lot of silver,the other minted in the 2000s which contains no silver at all.The legal exchange rate between the coins is fixed at one for one.According to Gresham's law,the 1950s silver dollar
A)is considered "bad" money.
B)will drive out of circulation the 1990s silver dollar.
C)is more likely to be used as a medium of exchange.
D)is less likely to be used as a medium of exchange.
E)is less likely to be used as a store of value because it will appear old fashioned.
Q2) If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of
A)$0.01.
B)$1.10.
C)$1.00.
D)$10.00.
E)$100.00.
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Page 28
Chapter 27: Money, Interest Rates, and Economic Activity
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Q1) Refer to Figure 27-4.The economy begins in equilibrium at E<sub>0</sub>.Now consider an expansion of the money supply.What is the long-run effect of this change?
A)a higher price level
B)a higher price level and higher real GDP
C)higher real GDP
D)lower real GDP
E)no change in price level or real GDP
Q2) The long-run neutrality of money implies that A)changes to the money supply have no effect on either the price level or real GDP.
B)changes to the money supply never have any effect on real GDP.
C)in response to any change in the money supply,the economy's adjustment process will bring Y back to Y*,which is unaffected by the change in the money supply.
D)the economy's level of potential output will adjust to accommodate any change in the money supply.
E)in response to any change in the money supply,the demand for money will adjust to cancel out its effects on all macroeconomic variables.
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Chapter 28: Monetary Policy in Canada
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Q1) High and uncertain inflation is damaging to the economy because A)the price system is no longer capable of effectively signalling changes in relative scarcity through changes in relative prices.
B)individuals who receive their incomes in fixed nominal terms are made worse off.
C)there can be unexpected reallocations of real income between workers and firms. D)there can be unexpected reallocations of real income between borrowers and lenders.
E)All of the above.
Q2) An expansionary monetary policy would ________ and would eventually increase the money supply.
A)reduce short-term interest rates
B)involve selling foreign-currency reserves in the foreign-exchange market
C)involve selling government bonds on the open market
D)increase short-term interest rates
E)involve increasing the target for the overnight interest rate
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Chapter 29: Inflation and Disinflation
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Q1) Isolated negative aggregate supply shocks,in the absence of monetary validation,will
A)eventually be self-correcting as wages slowly fall.
B)never be self-correcting without government policy to expand the money supply.
C)be self-correcting only if the aggregate demand curve shifts.
D)result in a permanent output gap.
E)have no short-run or long-run effects.
Q2) Suppose we know the following information about a hypothetical economy: - real GDP = $550 billion
- potential GDP = $500 billion - inflation rate = 4%
If the central bank tries to keep real GDP constant at $550 billion,the inflation rate is likely to
A)remain constant at 4%.
B)fall below 4%.
C)rise above 4%.
D)cause stagflation.
E)cause a recession.
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Chapter 30: Unemployment Fluctuations and the Nairu
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Q1) Suppose the Canadian government implements a new program to provide training to unemployed workers.The government is likely trying to reduce
A)frictional unemployment.
B)structural unemployment.
C)cyclical unemployment.
D)seasonal unemployment.
E)the gross flow of people out of unemployment.
Q2) The market-clearing and non-market-clearing theories of unemployment both agree that
A)actual unemployment rates will equal the NAIRU in the long run.
B)wages and prices are perfectly flexible.
C)unemployment is always voluntary.
D)actual output adjusts only gradually to potential output.
E)wages are rigid and adjust only over the long run.
Q3) Market-clearing theories of the labour market assume that labour markets
A)always clear.
B)are inefficient.
C)have asymmetrically rigid wages.
D)should be regulated to produce an efficient wage rate.
E)will always provide a subsistence wage.
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Chapter 31: Government Debt and Deficits
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Q1) Suppose the government decided to ensure that its structural budget deficit was always zero.This policy would be problematic because
A)it would act as a built-in destabilizer.
B)it would entail a rising debt-to-GDP ratio.
C)it would tend to mean that net exports would be crowded out.
D)it would require continual fiscal expansion.
E)it would require continual fiscal contraction.
Q2) Many economists argue that the long-term burden of government debt will include: 1)a redistribution of resources away from future generations toward the current generation;
2)reduced investment and as a result a lower long-run rate of economic growth; 3)a burden on future generations who will have to pay interest to the owners of government bonds.
A)1 and 2
B)2 and 3
C)1,2,and 3
D)2 only
E)3 only
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Chapter 32: The Gains From International Trade
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Q1) The existence of "absolute advantage"
A)implies that there will be no benefits from trade between two nations.
B)refers to a situation where one country can produce one unit of a given product with fewer resources than the other country.
C)fosters the self-sufficiency of nations.
D)refers to a situation where one country can produce one unit of all goods with fewer resources than can another country.
E)is not physically possible.
Q2) When two countries are specializing and trading with each other,the gains from trade will tend to be greater when
A)opportunity costs in the two countries are similar.
B)there are economies of scale in production.
C)prices rise in both countries.
D)the production possibilities boundaries shift inward.
E)comparative advantages are eliminated.
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Chapter 33: Trade Policy
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Q1) Suppose Canada has a 20% tariff on the import of carpets,and Canada currently imports this product from India at a with-tariff price of $22.The with-tariff price of identical carpets from the United States is $24.Now suppose a free-trade agreement with the U.S.eliminates the tariff and so the no-tariff price from the U.S.is $20.Canada now purchases carpets from the U.S.Is Canada made better off from this trade diversion?
A)No,because it would still be cheaper for individual consumers to buy carpets from India.
B)Canada is not better or worse off.The gain in consumer surplus in Canada is identical to the loss in tariff revenue to the Canadian government.
C)Yes,because Canadian consumers are paying less for carpets and consumer surplus has increased.
D)No,because before the agreement Canada was buying from India at a lower (pre-tariff)price and collecting tariff revenue.
E)Yes,because Canada has diverted trade toward the United States.
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Chapter 34: Exchange Rates and the Balance of Payments
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Q1) With respect to Canada's balance of payments,
A)if the current account is in deficit,the capital account must also be in deficit.
B)the current account balance must be zero.
C)the current account balance plus the capital account balance must be zero.
D)the trade account plus the capital account must equal the official financing account.
E)the capital account balance must be zero.
Q2) Refer to Figure 34-5.Suppose Canada has a system of fixed exchange rates.A decrease in the world's demand for Canadian exports will
A)require the Bank of Canada to accommodate the excess demand for Canadian dollars.
B)require the Bank of Canada to purchase foreign-currency reserves.
C)shift the AD curve to the left more than would have occurred under a flexible exchange rate.
D)shift the AD curve to the left less than would have occurred under a flexible exchange rate.
E)have less effect on national income than if the exchange rate had been flexible.
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