Most economists think that, in the short run, there is
a. a trade-off between inflation and unemployment, but not in the long run.
b. no trade-off between inflation and unemployment, nor is there one in the long run.
c. a trade-off between inflation and unemployment, and in the long run also.
d. no trade-off between inflation and unemployment, but there is one in the long run also.
a
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When an increase in the quantity of money is considered to be permanent and prices are sticky, then in the short run the exchange rate depreciates and overshoots because:
a. domestic nominal returns fall relative to foreign returns, and traders expect a permanent depreciation in future exchange rates. b. traders do not change their expectations of the exchange rate, and lower domestic rates make it easier to borrow. c. inflationary expectations eventually cause a rise in domestic real returns. d. traders quickly realize that their expectations of future exchange rates are incorrect and eventually prices will become unstuck.
According to Classical interest rate theory, falling interest rates will
A) increase the demand for money. B) decrease the demand for money. C) decrease investment expenditures. D) decrease the saving rate.