Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the short run would be:
A. P3 and Y1.
B. P2 and Y1.
C. P2 and Y3.
D. P1 and Y2.
Answer: B
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Assuming no change in the effective tax rate on capital, an increase in the government budget deficit will reduce the current account deficit if and only if the increase in the budget deficit
A) reduces desired national saving. B) increases desired national saving. C) reduces desired national investment. D) increases desired national investment.
Forecasts based on the extrapolation of observed trends and relationships are likely to be accurate, if ________
A) changes in expectations are properly considered B) policy actions are anticipated C) economic behavior is guided by rational expectations D) policy changes are understood to be permanent
Borrowing in foreign currencies to spend or invest domestically,
a. decreases demand for the domestic currency, appreciating the domestic currency b. increases demand for the domestic currency, depreciating the domestic currency c. increases demand for the domestic currency, appreciating the domestic currency d. does not affect the exchange rates
If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be
a. $500 higher and M2 would be $1,500 higher. b. $1,000 higher and M2 would be $1,500 higher. c. M2 and M1 would be $1,500 higher. d. $1,000 high and M2 would be $500 higher.