How people respond to fiscal policy:
A. is fairly mechanical and appears to conform closely to the predictions of macroeconomic models.
B. depends on whether the fiscal policy is financed from borrowing or from budget surpluses.
C. depends on their evaluation of the state of the economy and their expectations about the future.
D. generally reveals consistent irrationality and poorly-formed expectations about the future.
Ans: C. depends on their evaluation of the state of the economy and their expectations about the future.
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Suppose foreign exchange markets anticipate a devaluation for country A. Further assume that policy makers in country A will continue to fix its nominal exchange rate. In order to peg the currency at its original level, which of the following must occur?
A) increase the domestic interest rate B) increase the domestic price level C) convince trading partners to raise their interest rates D) all of the above E) none of the above
Sony is considering a 10 percent price reduction on its LCD television sets. If the demand for sets in this price range is inelastic:
A. revenues from LCD sets will remain constant. B. revenues from LCD sets will decrease. C. the number of LCD sets sold will decrease. D. revenues from LCD sets will increase.