Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete
equilibrium.
a. The real risk-free interest rate remains the same and reserve-related (central bank) transactions become more positive (or less negative).
b. The real risk-free interest rate falls and reserve-related (central bank) transactions become more negative (or less positive).
c. The real risk-free interest rate falls and reserve-related (central bank) transactions remain the same.
d. The real risk-free interest rate and reserve-related (central bank) transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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In the short run, a decrease in aggregate demand will lead to
A) no change in the price level and a decrease in real GDP. B) an increase in the price level and a decrease in real GDP. C) a decrease in the price level and an increase in real GDP. D) an increase in the price level and an increase in real GDP. E) a decrease in the price level and an increase in the unemployment rate.
In the new classical view, an anticipated decrease in government spending would be expected to
a. lower output and the price level. b. lower output but leave the price level unchanged. c. leave output unchanged and raise the price level. d. leave output unchanged and lower the price level. e. leave both output and the price level unchanged.
A college education can be a signal because
A) a college education is expensive. B) those who graduate college have successful parents, and are therefore also likely to be successful. C) highly capable people are more likely to finish college than those with low capabilities. D) college teaches useful skills and gives valuable training.
Suppose we believe the income response for hamburger consumption is positive (normal) at low income levels but becomes negative (inferior) at high income levels. Is the log-linear demand function a good choice for this particular product?
A) Yes, the log-linear model has an income elasticity that can be positive or negative. B) No, the log-linear model has a constant income elasticity that cannot change with the income level. C) No, the Engel curves for this case are vertical lines, and this behavior cannot be represented with the log-linear demand function. D) none of the above