Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. 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 reserves account in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls and reserves account becomes more
negative (or less positive).
b. The real risk-free interest rate rises and reserves account becomes more negative (or less positive).
c. The real risk-free interest rate and reserves account remain the same.
d. The real risk-free interest rate rises and reserves account remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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The deposit creation formula can be defined as
a. one minus the required reserve ratio. b. the same as the GDP income multiplier. c. the reciprocal of the required reserve ratio. d. one plus the required reserve ratio.
The law of diminishing marginal returns
A) results in average total cost (ATC) and marginal cost (MC) curves eventually increasing at an increasing rate. B) results in MC but not ATC curves eventually increasing at an increasing rate. C) causes average fixed costs to decline continuously as output increases. D) causes the difference between average total cost and average variable cost to shrink as output increases.
Inflation:
A. redistributes income from those who can raise prices to those who cannot. B. can obscure relative price changes. C. can undermine faith in the monetary system, the economy, and the government if it is high enough. D. makes society poorer on average.
If it costs Con Ed approximately $20 per additional ton of air pollution abated, but it costs PG&E only $10 per additional ton of air pollution abated, a marketable pollution permit trading for $14 per ton could
A. earn PG&E $6 per ton and save Con Ed $4 per ton. B. save PG&E $6 per ton and earn Con Ed $4 per ton. C. save PG&E $4 per ton and earn Con Ed $6 per ton. D. earn PG&E $4 per ton and save Con Ed $6 per ton.