Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and real GDP in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and real GDP rises.
b. The real risk-free interest rate falls, and real GDP rises.
c. The real risk-free interest rate rises, and real GDP falls.
d. The real risk-free interest rate and real GDP remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
You might also like to view...
Suppose there are only two goods: lettuce and grapes. In California, a head of lettuce sells for 50¢ and a bunch of grapes sells for $1. In Nebraska, 25¢ must be added to these absolute prices to cover transportation costs. How do these transportation costs affect the relative prices of lettuce and grapes?
a. The transportation costs do not affect the relative prices of lettuce and grapes. b. The relative prices of lettuce and grapes are both higher when transportation costs are added. c. The addition of transportation costs makes the relative price of grapes higher and the relative price of lettuce lower. d. The transportation costs raise the relative price of lettuce but lower the relative price of grapes.
Jeremiah spends all of his income on oranges and cookies, which are normal goods. If Jeremiah's income decreases, he will buy ________ oranges and ________ cookies
His marginal utility from oranges will ________ and his marginal utility from cookies will ________. A) fewer; fewer; decrease; increase B) more; more; decrease; decrease C) the same quantity of; fewer; remain constant; decrease D) fewer; fewer; increase; increase
When total product is rising:
A) marginal product is positive. B) marginal product is zero. C) marginal product is negative. D) average product is decreasing.
What happens to real money demand (rise, fall, no change) due to a change in each of the following factors?(a)A tax on stock market transactions is introduced.(b)Computerized bond trading reduces transactions costs.(c)People's average level of wealth rises.(d)The threat of a recession increases the riskiness of stocks and bonds.(e)The interest rate paid on checking account balances declines.(f)The price level falls in a one-time jump.
What will be an ideal response?