Discuss the different effects on the domestic interest rates when prices are assumed flexible and when they are assumed to be sticky
What will be an ideal response?
When prices are flexible, a decrease in the domestic money supply has no effect on the interest rate, because of the immediate decrease in the price level. However, when prices are assumed to be sticky, a decrease in the domestic money supply will cause the interest rate to rise, because the sticky domestic price level leads to an excess demand for real money balances at the initial interest rate.
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In the Thomas (1954) model,
(a) all nations near the Atlantic Ocean were considered one economic unit. (b) laborers, capital and other resources freely move to those users with the highest net returns. (c) the European economy moved inversely in relation to the U.S. economy and vice versa. (d) all of the above are true.
A tax on the value of a good or service being purchased is called the:
A. sales tax. B. payroll tax. C. personal income tax. D. excise tax.
What is measured by the ratio of export prices to import prices?
a. The terms of trade b. The productivity ratio c. The trade standards d. The gains from trade e. The balance of trade
If the Fed _____________________, the money supply will ultimately __________
A) raises the discount rate relative to the federal funds rate; decrease B) lowers the discount rate relative to the federal funds rate; increase C) lowers the discount rate relative to the federal funds rate; decrease D) raises the discount rate relative to the federal funds rate; increase E) a and b