Explain how does an increase in real interest rates affect the components of AE
What will be an ideal response?
An increase in the real interest rate makes firms less willing to invest in plant and equipment and makes households less likely to purchase new houses, so I declines. Similarly, an increase in the real interest rate gives consumers an incentive to save rather than to spend, so C declines. And a higher domestic real interest rate makes returns on domestic financial assets more attractive relative to those on foreign assets, raising the exchange rate. The rise in the exchange rate increases imports and reduces exports, thereby reducing NX.
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________ would be the source of a "real" business cycle
A) Unanticipated changes in monetary policy B) Anticipated changes in monetary policy C) Technology shocks D) all of the above
On a graph of a production possibilities curve, if a point is attainable, then it:
A. is efficient only if it does not exhaust all currently available resources. B. must completely exhaust all currently available resources. C. must be efficient. D. might or might not be efficient.
Refer to the information provided in Figure 2.4 below to answer the question(s) that follow.
Figure 2.4Refer to Figure 2.4. The economy moves from Point E to Point B. This could be explained by
A. a change in society's preferences for hybrid cars versus motorcycles. B. an increase in economic growth. C. an increase in unemployment. D. a reduction in unemployment.
Suppose there is an increase in real income of $500 billion in this economy. Given your consumption function, what is the change in consumption given this change in real income?
Consider an individual consumption function, which is the standard textbook consumption function, that is, has a y-intercept of autonomous consumption and is linear in the disposable income. Assume that the slope of this consumption function equals 0.7, and that the autonomous consumption equals $20 billion in the aggregate economy.