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 low mobility 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 falls, and GDP Price Index falls.
b. The real risk-free interest rate rises, and GDP Price Index falls.
c. The real risk-free interest rate and GDP Price Index remain the same.
d. The real risk-free interest rate falls, and GDP Price Index remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of
A) trade-off. B) equity. C) efficiency. D) optimization.
Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would
A) internalize the externality. B) externalize the externality. C) result in a marginal social benefit greater than the marginal cost of the electricity. D) be an example of supply-side economic policy.
In the extended classical model, an unanticipated increase in the money supply would cause output to ________ and the price level to ________ in the short run
A) increase; increase B) decrease; remain unchanged C) remain unchanged; increase D) decrease; decrease
It is impossible for total utility to be ________ when marginal utility is ________.
A. increasing; decreasing B. positive; negative C. decreasing; positive D. increasing; increasing