What are the direct and indirect effects of an increase in the money supply?
What will be an ideal response?
The direct effect of more money in the economy is to induce people to buy more goods and services, causing consumption expenditures to increase and aggregate demand to increase. The indirect effect is to increase reserves as people put some of the extra funds into transactions accounts. Banks want to make more loans, causing interest rates to fall. Consumer expenditures and business investment spending increase indirectly as the rise in reserves raises the money supply and pushes down the interest rate. Either way, the aggregate demand curve would shift out.
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Based on Table 3.1, which country or countries has an absolute advantage and a comparative advantage in shoes?
A) Mexico has an absolute and comparative advantage in shoes. B) The United States has an absolute and comparative advantage in shoes. C) The United States has a comparative advantage, and Mexico has an absolute advantage in shoes. D) Mexico has a comparative advantage, and the United States has an absolute advantage in shoes. E) There is not enough information to tell.
What is the relationship between real and nominal GDP?
a. real GDP = nominal GDP – Price level b. nominal GDP = Real GDP/Price level c. real GDP = nominal GDP/Price level d. real GDP = nominal GDP + Price level.