In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of:
A. the crowding-out effect.
B. "pulling on a string."
C. the Taylor rule.
D. the liquidity trap.
D. the liquidity trap.
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Due to an increase in real GDP:
a. Real consumption rises and real gross private domestic investment falls. b. Real consumption rises and real net exports fall. c. Real gross private domestic investment rises and real net exports rise. d. Real consumption rises and real gross private domestic investment remains the same. e. None of the above.
When an increase in the quantity of money is considered to be permanent and prices are sticky, then in the short run the exchange rate depreciates and overshoots because:
a. domestic nominal returns fall relative to foreign returns, and traders expect a permanent depreciation in future exchange rates. b. traders do not change their expectations of the exchange rate, and lower domestic rates make it easier to borrow. c. inflationary expectations eventually cause a rise in domestic real returns. d. traders quickly realize that their expectations of future exchange rates are incorrect and eventually prices will become unstuck.
Alice has $10 to spend on wine and cheese. If wine is $2.50 a glass and cheese $2, draw the corresponding budget line. Then draw three indifference curves, one showing the amount of wine and cheese Alice would choose, one showing less preferred combinations of wine and cheese, and the last showing preferred but unaffordable combinations. ?
What will be an ideal response?
As the housing bubble collapsed, and the value of homes decreased, consumers’ loss of wealth led to:
A. decreased consumption, which increased prices, which increased the costs of production, leading to more job loss. B. decreased consumption, which further depressed prices, which reduced output further, leading to more job loss. C. increased consumption, which increased prices, which increased the costs of production, leading to more job loss. D. decreased consumption, which further depressed prices, which decreased the amount people had to spend, and increased savings.