In a two-economy model of the United States and another large economy made up of the rest of the world, if desired saving by the rest of the world declined,
A. U.S. investment would increase.
B. the world real interest rate would increase.
C. U.S. saving would decrease.
D. the world real interest rate would decrease.
Answer: B
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Demand is inelastic only if the price elasticity of demand has an absolute value:
A. less than 0. B. greater than 5. C. of 1. D. greater than 0 but less than 1. E. greater than 1.
Imperfect asset substitutability exists
A) when it is possible for the expected returns on two assets to be different. B) when the expected returns on two assets are the same. C) only when one asset is foreign and the other is domestic. D) when there is risk in the foreign exchange market. E) when assets are liquid.
Changes in domestic and foreign income result in:
A) movements along the demand and supply curves of the foreign exchange market. B) shifts in the demand and supply curves of the foreign exchange market. C) all of the above. D) none of the above.
Suppose we have normally-sloped IS and LM curves intersecting at point A. Then a monetary policy change shifts the LM curve to the right. Directly below point A we find a point on the new LM curve that shows us
A) where the new IS-LM equilibrium occurs. B) how much the interest rate must fall to raise planned expenditures to the new equilibrium income. C) how much the interest rate must fall to by itself raise the demand for money by as much as the money supply has decreased. D) how much income must rise to by itself raise the demand for money by as much as the money supply has increased. E) how much the interest rate must fall to by itself lower the demand for money by as much as the money supply has decreased.