Show the effects of a change in the nominal interest rate and a change in real GDP using the demand for money curve
What will be an ideal response?
An increase in the nominal interest rate decreases the quantity of real money demanded. The slope of the demand for money curve shows how the quantity of real money demanded depends on the nominal interest rate. As illustrated in Figure 8.1, a decrease in the nominal interest rate results in a movement downward along the demand for money curve.
A change in real GDP changes the demand for money. An increase in real GDP increases the demand for money and shifts the demand for curve for real money rightward from MD0 to MD1, as shown in Figure 8.2.
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In a production process, an excessive amount of the variable input relative to the fixed input is being used to produce the desired output. This statement is true for:
a. stage II b. stages I and II c. when Ep = 1 d. stage III e. none of the above
Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and net nonreserve international borrowing/lending balance in the context of the Three-Sector-Model? a. The GDP Price Index falls and net nonreserve
international borrowing/lending balance becomes more negative (or less positive). b. The GDP Price Index rises and net nonreserve international borrowing/lending balance becomes more negative (or less positive). c. The GDP Price Index falls and net nonreserve international borrowing/lending balance becomes more positive (or less negative). d. The GDP Price Index and net nonreserve international borrowing/lending balance remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.