According to the Ricardo-Barro effect, if the government runs a budget deficit of $100 billion, by how much does the amount of equilibrium investment increase or decrease?
What will be an ideal response?
Equilibrium investment does not increase or decrease. There is no change in the amount of investment because private saving changes to precisely offset the government budget deficit. In other words, the $100 billion deficit leads to an increase in private saving of $100 billion which exactly matches the increase in the demand for loanable funds. As a result, neither the equilibrium real interest rate nor the equilibrium amount of loanable funds changes.
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If the nominal exchange rate rises and price levels stay constant, the real exchange rate will
A) rise. B) fall. C) stay constant. D) could rise, fall or stay constant.
The profit-maximizing price and quantity established by a perfectly competitive firm in the above figure are
A) Q1 units of output and a price of P5. B) Q3 units of output and a price of P3. C) Q1 units of output and a price of P1. D) Q4 units of output and a price of P4.
Suppose demand decreases and supply decreases. Which of the following will happen?
a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. The change in equilibrium price and quantity cannot be determined.
Is it likely that oligopolistic firms will be in both a kinked demand curve situation and also engage in price leadership? Why or why not?
What will be an ideal response?