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 real GDP and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. Real GDP rises, and nominal value of the domestic currency falls.
b. Real GDP rises, and nominal value of the domestic currency rises.
c. Real GDP falls, and nominal value of the domestic currency remains the same.
d. Real GDP falls, and nominal value of the domestic currency falls.
e. Real GDP falls, and nominal value of the domestic currency rises.
.D
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Interest rates that are adjusted for expected inflation are known as:
A. nominal interest rates. B. ex ante real interest rates. C. coupon rates. D. ex post real interest rates.
Economic growth can best be portrayed as a:
A. leftward shift of the production possibilities curve. B. movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities curve. C. movement from a point inside to a point outside of the production possibilities curve. D. rightward shift of the production possibilities curve.
The reason that only final sales count in GDP is to
A. undervalue labor. B. make it easier to do the accounting. C. overvalue capital. D. avoid double counting.
Until recently, the elasticity of demand for cigarettes by adults was such that an increase in cigarette taxes to one dollar would
A. cut adult smoking by around 10%. B. cut adult smoking by half. C. actually increase adult smoking. D. have absolutely no effect of adult smoking.