If the central bank of a country increases the interest rate, it will:
a. weaken the exchange rate
b. decrease the demand for investment spending.
c. increase the price level.
d. increase the net exports of that country.
b
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According to the Taylor, if there is an expansionary gap of 2 percent of potential output and inflation is 3 percent, what real interest rate will the Fed set?
A. 0.015 B. 0.02 C. 0.035 D. 0.025
Yi and Avik are both economists. Yi thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Avik does not think that household saving would respond much to a change in the tax laws. In this example, Yi and Avik
a. hold different normative views about the tax system. b. disagree about the validity of a positive theory. c. have a fundamental misunderstanding of the tax system. d. More than one of the above is correct.
Other things the same, as the price level rises, exchange rates
a. and interest rates rise. b. and interest rates fall. c. fall and interest rates rise. d. rise and interest rates fall.
Starting from long-run equilibrium, an increase in autonomous investment results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; higher C. lower; higher D. higher; potential