Assume that the central bank sells government securities in the open market. If the nation has highly mobile 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? State your answer after the macroeconomic system returns to complete equilibrium
a. The real risk-free interest rate rises and real GDP falls.
b. The real risk-free interest rate falls and real GDP rises.
c. The real risk-free interest rate rises and real GDP remains the same.
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.
.D
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In the Keynesian model, the real wage is mildly procyclical because
A) demand for labor fluctuates with the demand for final goods. B) firms take advantage of recessions to pay slightly lower wages, since there's excess labor supply. C) workers' effort may depend on the unemployment rate and the real wage. D) the supply of labor fluctuates with the business cycle.
What restricts the Fed's ability to write checks and purchase U.S. securities?
a. Congress; the Fed must receive a budget allocation from Congress before it can write a check. b. The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. c. Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. d. Nothing; the Fed can create money simply by writing a check on itself.