2. Evaluate whether the following statements are true or false, and explain your answer:

a. A trade deficit occurs when the government spends more than it receives in tax revenue.

b. In an open, mixed economy, the equilibrium level of GDP occurs when planned saving equals planned investment.

c. An increase in interest rates in the rest of the world will lead to a stronger dollar.

d. Under a fixed exchange rate system with global capital flows, monetary policy is ineffective.

However, under a flexible exchange rate system, monetary policy is typically more effective than fiscal policy in increasing real GDP.

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TABLE 15.2 (updated) Effect of Dollar Appreciation and Depreciation on U.S. Exports and Imports R = EURO/$ DOMESTIC PRICE JAN 09: R = 0.76 JUNE 09: EFFECT ON EXPORTS (X) R=0.71 AND IMPORTS (M) U.S.exports: Televisions $1,000 U.S. imports: Euro 25,000 European cars JAN 08: R = 0.68 JAN 09: R=0.76 U.S.exports: Televisions $1,000 U.S. imports: Euro 25,000 European cars