Suppose the US imposes tariffs on China, which retaliates with tariffs of its own. The ensuing trade war causes both countries to begin producing goods at higher costs than before because of the loss of comparative advantage. Assuming the IS curve does not shift, in general equilibrium, the outcome is a ________ level of output and a ________ real interest rate.
A. lower; higher
B. higher; lower
C. lower; lower
D. higher; higher
Answer: A
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The demand for loanable funds curve shows the relationship between the quantity of loanable funds demanded and
A) the capital stock. B) the expected rate of profit. C) the real interest rate. D) depreciation. E) the price level.
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Indicate whether the statement is true or false
For this question, assume that the domestic interest rate is 6% and that the foreign interest rate 4%. And finally, assume that the domestic currency is expected to appreciate by 3% during the coming year. Given this information, we know that
A) individuals will only hold domestic bonds. B) individuals will only hold foreign bonds. C) individuals will be indifferent about holding domestic or foreign bonds. D) the interest parity condition holds.