Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and current international transactions in the context of the Three-Sector-Model?
a. Real GDP falls, and current international transactions become more negative (or less positive).
b. Real GDP rises, and current international transactions become more negative (or less positive).
c. Real GDP and current international transactions remain the same.
d. Real GDP rises, and current international transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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Critically evaluate the following statement. "If a country can produce a good using fewer inputs than other country then that means that country enjoys a comparative advantage."
What will be an ideal response?
Automatic stabilizers are government programs that:
a. exaggerate the ups and downs in aggregate demand without legislative action. b. bring expenditures and revenues automatically into balance without legislative action. c. shift the budget toward a deficit when the economy slows but shift it toward a surplus during an expansion. d. increase tax collections automatically during a recession.