Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. 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 GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate and GDP Price Index remain the same.
b. The real risk-free interest rate falls, and GDP Price Index falls.
c. The real risk-free interest rate falls, and GDP Price Index stays the same.
d. The real risk-free interest rate rises, and GDP Price Index falls.
e. The real risk-free interest rate rises, and GDP Price Index rises.
.B
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Suppose the price of a can was $5.10. In this case, to maximize its profit, the firm illustrated in the figure above would
A) decrease its production and would make an economic profit. B) not change its production and would make zero economic profit. C) not change its production and would make an economic profit. D) decrease its production and would incur an economic loss. E) not change its production and would incur an economic loss.
The above figure shows Sam's budget line and one of his indifference curves. What combination of coffee and gasoline will Sam select?
A) combination a because that contains all the gasoline he needs and still has some coffee B) combination c because that contains all the coffee he needs and some gasoline C) combination b because it is on his budget line and on the highest attainable indifference curve D) none of the above