Efficient allocation of resources makes everyone better off

If exchange rates are floating, an expansionary fiscal policy in the United States will cause the dollar to ________ relative to other currencies and cause net capital outflows to ________

A) appreciate; increase B) appreciate; decrease C) depreciate; increase D) depreciate; decrease

The Gibson Paradox shows that:

a. Central banks face a paradox when they want to stimulate their economies because consumers may not spend the newly created money. b. When monetary policy is loose and expected inflation rises, the nominal interest rate rises rather than falls. c. When fiscal policy is loose (i.e., high government spending and falling tax rates), society as a whole is more willing (not less willing) to give up consumption today for consumption in the future. d. When expected inflation rises, nominal interest rates fall rather than rise. e. When expected inflation falls, government spending tends to increase, rather than decrease, as is frequently assumed.