If countries decide they will no longer buy U.S. assets or lend to the United States:
A. adjustments will be set in motion to equalize comparative advantages.
B. the United States can begin to run a trade deficit.
C. adjustments will be set in motion so that the United States has more comparative advantages.
D. There is no reason foreign countries will not want to buy more U.S. assets than the United States buys of foreign assets.
Answer: A
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A) always choose the bond with the highest expected return, regardless of maturity. B) require a term premium to compensate them for investing in a less preferred maturity. C) view bonds of different maturities as perfect substitutes. D) view bonds of different maturities as completely unsubstitutable.
Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate
A) will be greater than B) will be less than C) will be the same as D) may be greater than or less than