Assume that business investment spending rises, and the increase is funded by greater borrowing in the capital markets. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and net nonreserve international borrowing/lending balance in the context of the Three-Sector-Model?
a. The GDP Price Index rises and net
nonreserve international borrowing/lending balance becomes more positive (or less negative).
b. The GDP Price Index rises and net nonreserve international borrowing/lending balance becomes more negative (or less positive).
c. The GDP Price Index falls and net nonreserve international borrowing/lending balance becomes more positive (or less negative).
d. The GDP Price Index and net nonreserve international borrowing/lending balance remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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Graphically an increase in the short-run aggregate supply line represents a(n) ________, and a shift leftward of the long-run aggregate supply line represents a(n) ________.
A. adverse inflation shock; shock to potential output B. favorable inflation shock; shock to potential output C. shock to potential output; favorable inflation shock D. shock to potential output; adverse inflation shock
The Fed would be pursuing a contractionary monetary policy if it was
A) selling bonds in the open market. B) lowering the differential between the discount rate and the federal funds rate. C) selling dollars in foreign exchange markets. D) lowering the reserve requirement.
The establishment of an income tax, ceteris paribus, will result in
A) a lower expenditure multiplier. B) a higher expenditure multiplier. C) no change in the size of the multiplier. D) None of the above.
Why does quantity demanded decrease when price increases?
a. People choose to reduce consumption of the item. b. People "drop out" of the market for the item. c. People find substitutes for the item. d. All of the above are correct.