If the economy suffers a recession for reasons unrelated to fiscal policy, the deficit should rise and
A. inflation should fall.
B. interest rates should fall.
C. real GDP should fall.
D. all of the above are correct.
Answer: D
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If the nominal interest rate is 0% and the real interest rate is 2%, what is the inflation rate?
A) -2% B) 2% C) -4% D) 0%
Refer to Figure 29-1. Suppose that the U.S. government deficit decreases, causing interest rates in the United States to fall relative to those in the European Union. Assuming all else remains constant, how would this be represented?
A) Demand would increase and the economy moves from A to B. B) Demand would decrease and the economy moves from B to A. C) Supply would increase, demand would increase and the economy moves from D to A to B. D) Supply would decrease, demand would increase and the economy moves from A to D to C.