Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls and reserve-related (central bank) transactions become more negative (or less positive).
b. The real risk-free interest rate rises and reserve-related (central bank) transactions become more negative (or less positive).
c. The real risk-free interest rate falls and reserve-related (central bank) transactions remain the same.
d. The real risk-free interest rate rises and reserve-related (central bank) transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 2 - If a nation experiences severe drought and real risk-free interest rate rises, then:
a. Aggregate demand rises, and aggregate supply falls.
b. Aggregate demand rises, but aggregate supply does not change.
c. Aggregate demand and aggregate supply fall.
d. Neither aggregate demand nor aggregate supply change.
e. None of the above.
Question 3 - Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and net nonreserve international borrowing/investing in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and net nonreserve international borrowing/investing becomes more positive (or less negative).
b. The real risk-free interest rate falls and net nonreserve international borrowing/investing becomes more negative (or less positive).
c. The real risk-free interest rate rises and net nonreserve international borrowing/investing becomes more negative (or less positive).
d. The real risk-free interest rate and net nonreserve international borrowing/investing remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 4 - Demand-pull inflation has its most extreme effect on a nation's price level in the:
a. Keynesian range.
b. Twilight zone.
c. Intermediate range.
d. Classical range.
e. Somewhere over the rainbow.
Question 5 - Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and nominal value of the domestic currency falls.
b. The real risk-free interest rate falls and nominal value of the domestic currency remains the same.
c. The real risk-free interest rate rises and nominal value of the domestic currency remains the same.
d. The real risk-free interest rate rises and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 6 - Demand pull inflation occurs when a nation's:
a. Aggregate demand rises, causing rising prices and rising unemployment.
b. Aggregate demand rises, causing rising prices and falling unemployment.
c. Aggregate demand rises, which leads to a decrease in aggregate supply and an increase in prices.
d. Aggregate supply falls, causing rising prices and rising unemployment.
Question 7 - Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed 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 falls and real GDP rises.
b. The real risk-free interest rate rises and real GDP remains the same.
c. The real risk-free interest rate and real GDP remain the same.
d. The real risk-free interest rate falls and real GDP falls.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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