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 GDP Price Index and current international transactions in the context of the Three-Sector-Model?
a. The GDP Price Index rises, and current international transactions become more negative (or less positive).
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The GDP Price Index rises, and current international transactions become more positive (or less negative).
d. The GDP Price Index and current international transactions remain the same.
e. The GDP Price Index falls, and current international transactions become more negative (or less positive).
.A
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With which of the following statements would a "real business cycle" theorist most closely agree?
A) "Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously." B) "Monetary policies have the greatest impact on real GDP when they are anticipated." C) "Wages adjust rapidly to changes in inflation as long as expectations are formed rationally." D) "Technological shocks to the economy affect only aggregate demand in the short run."
If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see?
A) an increase in the exchange rate B) a decrease in net exports C) a decrease in the interest rate D) an increase in aggregate demand