Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
b. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
c. The real risk-free interest rate falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
d. The real risk-free interest rate and net nonreserve-related international borrowing/lending remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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The government's profit from issuing fiat money is known as
A) seigniorage. B) menu costs. C) commodity profit. D) tax distortions.
If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50, then
a. the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers. b. society could be made better off by expanding the output of milk. c. resources are not being used most efficiently. d. All of the above are true.