Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and nominal value of the domestic currency rises.
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The real risk-free interest rate rises, and nominal value of the domestic currency remains the same.
d. The real risk-free interest rate falls, and nominal value of the domestic currency falls.
e. The real risk-free interest rate rises, and nominal value of the domestic currency falls.
.D
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Which of the following statements is true?
A) A buyer who sets a price so that he can purchase any amount of a good he wants at a fixed price, if he has the money to pay for it, is called a price leader. B) All buyers in a perfectly competitive market set prices to compete in their market. C) The relative prices of goods do not affect a consumer's buying decision. D) A consumer in a perfectly competitive market buys only a tiny fraction of the total amount produced.
In the case where money demand is completely interest insensitive (interest elasticity equals zero), an increase in the quantity of money will
a. increase income but leave the interest rate unchanged. b. increase income and lower the interest rate. c. lower the interest rate but leave income unchanged. d. leave both income and the interest rate unchanged.
The Social Security system was founded
A) during the Civil War, to pay pensions for veterans. B) during the last years of the nineteenth century, as people who had once depended on having a family farm found themselves without a means of support. C) as the United States began to recover from the Great Depression. D) in response to concerns that arose during the high inflation of the 1970s.
According to the quantity theory of money currently used by monetarists, assuming velocity is constant (at a value of 5), a 10 percent increase in the money supply will raise
a. nominal GDP by 50 percent. b. real GDP by 10 percent. c. nominal GDP by 10 percent. d. real GDP by 50 percent.