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 reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and reserve-related (central bank) transactions become more positive (or less negative).
b. The real risk-free interest rate rises, and reserve-related (central bank) transactions become more negative (or less positive).
c. The real risk-free interest rate rises, and reserve-related (central bank) transactions remain the same.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The real risk-free interest rate falls, and reserve-related (central bank) transactions become more negative (or less positive).
.C
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In the long run, under perfect competition:
A) firms earn positive economic profit because of economies of scale. B) firms earn positive accounting profit because of government regulations. C) firms earn zero economic profit because of free entry and exit of firms. D) firms earn negative economic profit because of free entry and exit of firms.
Individuals will usually make choices to minimize the value of some objective.
a. true b. false