In the money market, how is the adjustment to equilibrium brought about in the short run and in the long run?
What will be an ideal response?
In the short run, the nominal interest rate adjusts to restore equilibrium in the money market. In the long run, however, the nominal interest rate equals the real interest plus the inflation rate, so it cannot freely adjust to restore equilibrium in the money market. In the long run when the economy is at full employment, the price level changes to restore equilibrium in the money market.
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Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and current international transactions balance in the context of the Three-Sector-Model? a. The GDP Price Index
falls and current international transactions balance becomes more positive (or less negative). b. The GDP Price Index and current international transactions balance remain the same. c. The GDP Price Index falls and current international transactions balance remains the same. d. Real GDP falls and nominal value of the domestic currency rises. e. There is not enough information to determine what happens to these two macroeconomic variables.
The government will have to subsidize a natural monopoly in the long run if regulators choose to pursue:
A. marginal cost pricing B. fair-return pricing. C. per se pricing. D. any form of regulation.