Economic models
A. are simplified representations of the real world.
B. must use laboratory experiments.
C. must capture every detail or interrelationship that exists.
D. all of these are correct.
Answer: A
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An increase in income taxes ________ employment and ________ potential GDP
A) increases; increases B) increases; does not change C) decreases; decreases D) does not change; does not change E) increases; decreases
Crowding-out is eliminated when the LM curve is ________, so that expansionary fiscal policy ________ the interest rate
A) vertical, does not affect B) vertical, raises C) horizontal, does not affect D) horizontal, raises
In Figure 13-1, which panel shows the effect of inflation on the interest rate?
a. Panel (C) b. Panel (D) c. Panel (A) d. Panel (B)
What happens to the output gap, the real interest rate, and net capital flows with the occurrence of each of the following events? Assume that exchange rates are flexible
a. The Federal Reserve increases the money supply. b. U.S. net exports decrease due to a decrease in incomes in Canada. c. Consumers decide to save more and spend less. d. Expected profits from newly-built factories in the United States decrease.