The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy was at Point A, a triple intersection. Here, the FE curve is flatter than the LM curve.
If monetary authority is unable to sterilize, the interest rate will end up
A. at i0.
B. at i1.
C. between i1 and i0.
D. above i1.
Answer: C
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When many substitutes exist for a good, demand will be
A) elastic. B) unit-elastic. C) inelastic. D) perfectly unit-elastic.
Most markets, if left alone, will tend toward
A. elasticity. B. market price. C. zero price. D. equilibrium price.
The principle of opportunity cost is that
A) the economic cost of using a factor of production is the alternative use of that factor that is given up. B) taking advantage of investment opportunities involves costs. C) the cost of production varies depending on the opportunity for technological application. D) in a market economy, taking advantage of profitable opportunities involves some money cost.
Which of the following statements about a circular flow model is false?
A) Producers are buyers in the factor market and sellers in the product market. B) Households are neither buyers nor sellers in the input market. C) Households are buyers in the product market. D) Producers are buyers in the factor market.