Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed 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.
.B
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A tariff makes the total economy
A) better off because it increases the domestic production of the good. B) better off because it decreases the deadweight loss from international trade. C) worse off because it creates a deadweight loss. D) worse off because it creates revenue for the government. E) worse off because it decreases both domestic consumer surplus and domestic producer surplus.
Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase:
a. prices but not real output in the short run. b. real output but not prices in the short run. c. real output in the long run but not in the short run. d. real output in both the long run and the short run.