Assume that the central bank increases the reserve requirement. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and GDP Price Index rises.
b. The real risk-free interest rate falls, and GDP Price Index falls.
c. The real risk-free interest rate rises, and GDP Price Index falls.
d. The real risk-free interest rate and GDP Price Index remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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When the Fed lowers the target rate of interest for federal funds, it
A) buys government bonds. B) lowers the discount rate. C) sells government bonds. D) lowers the required reserve ratio.
Asymmetric information is:
A) information revealed by economic agents turns out to be wrong. B) inflation forecasts are systematically to high or too low. C) some economic agents have more information than others. D) the government knows less about the economy than households and firms.