In a two-period model, as long as wealth effects are small, an increase in the world real interest rate
A) increases consumption and increases the current account surplus.
B) increases consumption and decreases the current account surplus.
C) decreases consumption and increases the current account surplus.
D) decreases consumption and decreases the current account surplus.
C
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Answer the following statement(s) true (T) or false (F)
1. The government can influence the economy through its fiscal policy by making changes in the money supply. 2. When the Federal Reserve Bank buys or sells U.S. securities, it changes the level of reserves in the banking system, which has an effect on interest rates. 3. The discount rate is the interest rate banks are charged when they borrow money from the Fed. 4. The Fed relies primarily on changes in the reserve requirement (the minimum amount of money banks must hold in reserve to cover deposits) to ease or tighten the money supply.
The demand for good X has been estimated to be ln Qxd = 100 ? 2.5 ln PX + 4 ln PY + ln M. The income elasticity of good X is:
A. 1.0. B. 2.0. C. ?2.5. D. 4.0.
The crowding-out effect of expansionary fiscal policy suggests that:
A. consumer and investment spending always vary inversely. B. it is very difficult to have excessive aggregate spending in the U.S. economy. C. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. D. tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
Recall the Application about how changes in supply affect the price of gasoline to answer the following question(s).Recall the Application. Suppose the price elasticity of demand for gasoline is 0.20 and the price elasticity of supply for gasoline is 0.55. If supply increases by 20 percent, the equilibrium price will decrease by:
A. 27 percent. B. 57 percent. C. 175 percent. D. 375 percent.