Question

In: Economics

1. An increase in the price level and a reduction in output would result from

	a.	a fall in stock prices.
	b.	a decrease in the supply of an important resource.
	c.	an increase in government expenditures.
	d.	an increase in taxes.

2. The interest-rate effect

	a.	depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.
	b.	depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded.
	c.	is responsible for the downward slope of the money-demand curve.
	d.	is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

3. If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

	a.	True
	b.	False

4. According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

	a.	True
	b.	False

5. As the price level rises

	a.	people will want to hold more money, so the interest rate rises.
	b.	people will want to hold more money, so the interest rate falls.
	c.	people will want to hold less money, so the interest rate falls.
	d.	people will want to hold less money, so the interest rate rises.

Expert Solution

a) ""B"

A decrease in the supply of the important source will shift the supply curve to the left and that will increase the price level and decrease the output in the market.

b) "C"

As the interest rate rises people will hold less money in hand and invest more, if the interest rate is low the money demand will be higher, interest rate is the price of spending money.

c) True

Net capital outflow and the exports will be same, if the expenditure in the economy is more than the output then the economy will be importing the goods from the world market.

d) True

Net capital outflow and exports are the same. if one increases the other will increase automatically.

e) "A"

At a higher level of price the money demand will increase, the interest rate will have to increase to keep the money market in equilibrium.

Rahul Sunny answered 2 years ago

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