According to the Taylor rule, if inflation equals 4 percent and there is a recessionary gap equal to 4 percent of potential output, the Fed will set a real interest rate of ________ percent and a nominal interest rate of ________ percent.
A. 4; 4
B. 2; 4
C. 1; 5
D. 1; 4
Answer: C
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Everything else held constant, an increase in the required reserve ratio will result in ________ in M1 and ________ in M2
A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease
Most economists believe that convergence of GDP per capita ________ between developed nations and ________ between developing and developed nations
A) has not occurred; has occurred B) has occurred; has occurred C) has not occurred; has not occurred D) has occurred; has not occurred
Elasticity of demand is likely to be higher for less-expensive goods, other things being equal
a. True b. False Indicate whether the statement is true or false
For a country with flexible exchange rates, if a nation's interest rate rose, what effect would this have on its current account balance?
a. No effect because interest has no effect on the current account. b. Increase it because foreign capital flows would be attracted to the nation thereby building economic strength. c. Decrease it because the exchange rate will appreciate. d. Increase it because the exchange rate will depreciate. e. Decrease because the exchange rate will depreciate.