The liquidity effect is the
A) decrease in the interest rate due to an increase in the supply of loanable funds.
B) increase in the interest rate due to an increase in national income.
C) increase in the interest rate due to a higher expected inflation rate.
D) increase in the interest rate due to an increase in the price level.
A
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The above figure shows the U.S. market for 1 carat diamonds. With free trade, Americans buy ________ diamonds and pay a price of ________ per diamond
A) 300,000; $4,000 B) 500,000; $4,000 C) 700,000; $3,000 D) 300,000; $3,000 E) 900,000; $2,000
Assume individuals consider only the medium run effects of changes in future macro variables when forming expectations of future output and future interest rates. Suppose current taxes are cut AND that individuals expect future taxes to decrease. Given this information, we know with certainty that
A) current output and the current interest rate will both increase. B) current output will increase. C) the current interest rate will increase. D) the expected future interest rate will increase.