Suppose the government spending multiplier is 2. The federal government cuts spending by $40 billion. What is the change in GDP if the price level is not held constant?
A) an increase of less than $80 billion
B) an increase equal to $80 billion
C) an increase of greater than $80 billion
D) a decrease of less than $80 billion
E) a decrease of more than $80 billion
Answer: D
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Using the UIP equation, equilibrium in the short run occurs when
a) arbitrage is possible b) the spot rate is such that foreign and domestic investment returns are equalized c) the spot rate and forward rate are equalized d) foreign interest rates and domestic interest rates are equalized
Individuals making decisions about how much to purchase of a product with an external benefit base their decisions on which of the following?
A) the price and marginal private benefit B) the economically efficient output C) the price and the marginal social benefit D) the size of the deadweight loss