How does an increase in the price level lead to a higher interest rate?
What will be an ideal response?
An increase in the price level reduces the supply of real balances, shifting the supply curve to the left. As a result, the quantity demanded for real money balances exceeds the quantity supplied. Households and firms will attempt to restore their desired holdings of real balances by selling short-term assets, such as Treasury bills. This increased supply of Treasury bills will drive down their prices and increase interest rates on those bills.
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If the short-run average variable cost of production for a firm is decreasing, then it follows that
A. average variable cost must be greater than marginal cost. B. marginal cost must be decreasing. C. average variable cost must be greater than average fixed cost. D. average fixed cost must be constant.
The statement that there is an inverse relationship between x and y means that
a. x causes y b. y causes x c. x and y move in opposite directions d. either y causes x or x causes y e. there is no causal relationship between x and y
Which of the following is not correct regarding dumping?
a. In the country where products are dumped, consumer surplus grows as a result of the dumping. b. Dumping involves the selling of a product by foreign producers at a price lower than that in their own countries. c. Critics of dumping recommend applying a tariff as the correct antidumping measure. d. A major difficulty with dumping by firms in other countries is that it drives up prices to the domestic consumer. e. Predatory dumping is often aimed at driving domestic producers out of business.
Because monetary stimulus overwhelmed fiscal contraction in the United States during the 1992- 2000 period,
a. real GDP grew. b. real GDP decreased. c. the rate of inflation increased. d. the budget deficit increased.