Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate
A decrease in demand for capital goods is a decrease in investment demand. As investment demand decreases, the demand for loanable funds shifts left. This shift decreases the real interest rate. The decrease in the interest rate raises net capital outflow. The increase in net capital outflow shifts the supply of currency in the foreign exchange market to the right, reducing the real exchange rate.
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When the percentage change in the quantity supplied equals the percentage change in price, the supply is
A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic. E) perfectly inelastic.
The imposition of a tariff will typically ________ government revenue and ________ domestic production of the good
A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease E) increase; not change