What is the difference between the nominal interest rate and the real interest rate?
What will be an ideal response?
The nominal interest rate is the stated interest rate on a loan, while the real interest rate is the nominal interest rate minus the inflation rate.
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According to supply-side economists, lower marginal tax rates will not necessarily lead to lower tax revenues because
A) the crowding out effect does not apply to taxes. B) lower tax rates have no effect on the opportunity cost of labor. C) the aggregate supply curve will shift inward to the left if the tax rates are lowered. D) the lower marginal tax rates will be applied to a growing tax base due to economic growth.
For this question, assume that there is a simultaneous increase in government spending and monetary contraction. In a flexible exchange rate regime, we know with certainty that such a policy mix will cause which of the following?
A) an increase in the domestic interest rate B) an increase in the exchange rate C) a reduction in net exports D) all of the above E) only A and C