Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and current international transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and current international transactions become more positive (or less negative).
b. The real risk-free interest rate falls, and current international transactions become more negative (or less positive).
c. The real risk-free interest rate and current international transactions remain the same.
d. The real risk-free interest rate rises, and current international transactions become more negative (or less positive).
e. The real risk-free interest rate rises, and current international transactions remain the same.
.D
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Economic data:
A. are sometimes revised months or years after their initial release. B. are never fully reliable, even after years of revisions. C. tend to be completely reliable and accurate when first reported. D. are meaningless if not interpreted by a policymaker with good instincts.
What is the most powerful influence determining the level of national income equilibrium? Unlike Alfred Marshall who used the scissors metaphor to show that both supply and demand are equally involved in determining equilibrium price, Keynes argued that
a. aggregate expenditure is the most powerful influence on national income determination b. aggregate supply is the most powerful influence on national income determination c. aggregate saving is the most powerful influence on national income determination d. government expenditure is the most powerful influence on national income determination e. consumption is the most powerful influence on national income determination