Assume that prices and wages adjust rapidly so that the markets for labor, goods, and assets are always in equilibrium. What are the effects of each of the following on output, the expected real interest rate, and the current price level?(a)a temporary increase in taxes(b)a reduction in the effective tax rate on capital(c)an increase in expected inflation
What will be an ideal response?
| (a) | Under Ricardian equivalence, no effect on output, real interest rate, or price level. Without |
| (b) | The lower tax rate on capital increases desired investment, thus raising the expected real |
| (c) | The increase in the expected inflation rate has no effect on the labor market or goods market, so |
You might also like to view...
Assuming all excess reserves are loaned out, if the reserve ratio is 1 percent, the money multiplier will be equal to
A) 1. B) 10. C) 11. D) 100.
According to the Hotelling Principle, the price of a nonrenewable resource is expected to
A) rise at a rate higher than the interest rate. B) rise at a rate lower than the interest rate. C) rise at a rate equal to the interest rate. D) fall at a rate equal to the interest rate.
Currency reserves on account with the International Monetary Fund used to settle accounts between countries are known as
A) federal reserves. B) official reserve account transactions. C) unilateral transfer. D) special drawing rights.
Which of the following is true? a. Demand deposits and other checkable deposits have replaced paper and metallic currency as the major source of money used for transactions in the United States. b. Credit cards are not money; they are substitutes for the use of money in exchange
c. Most of the money that we use for day-to-day transactions is not official legal tender. d. all of the above