Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate and GDP Price Index remain the same.
b. The real risk-free interest rate falls, and GDP Price Index falls.
c. The real risk-free interest rate falls, and GDP Price Index stays the same.
d. The real risk-free interest rate rises, and GDP Price Index falls.
e. The real risk-free interest rate rises, and GDP Price Index rises.
.B
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If there is a large increase in the price of oil and the Fed wishes to maintain stable output, which of the following should it do?
a. Do nothing, because the self-correcting mechanism will adjust the economy b. Sell bonds in the open market c. Wait, because output seldom changes when there is an increase in the price of oil d. Encourage firms to not adjust the wages they pay e. Buy bonds in the open market
Rebel Records announces it is cutting the prices of its bluegrass album titles by 25 percent. If Rebel is seeking to increase revenues, it must believe that the elasticity of demand for bluegrass albums is
a. elastic. b. inelastic. c. of unitary elasticity. d. perfectly inelastic.
Which of the following statements is incorrect for an open economy?
a. A country can have a trade deficit, trade surplus, or balanced trade. b. A country that has a trade deficit has positive net capital outflow. c. Net exports must equal net capital outflow. d. National saving equals domestic investment plus net capital outflow.
Refer to the figure below.________ inflation will eventually move the economy pictured in the diagram from short-run equilibrium at point ________ to long-run equilibrium at point ________. 
A. Rising; A B. Falling; A; C C. Falling; B: C D. Rising; A; C