Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and net nonreserve international borrowing/lending balancein the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete
equilibrium.
a. The GDP Price Index remains the same and net nonreserve international borrowing/lending balance becomes more negative (or less positive).
b. The GDP Price Index rises and net nonreserve international borrowing/lending balance becomes more negative (or less positive).
c. The GDP Price Index falls and net nonreserve international borrowing/lending balance becomes more positive (or less negative).
d. The GDP Price Index and net nonreserve international borrowing/lending balanceremain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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U.S. Treasury securities
A) are considered risk free because their prices never change. B) have been defaulted on several time in U.S. history. C) are considered default-risk-free instruments. D) have a large default risk premium.
Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent. If he expected the price level to rise at a rate of 3 percent this year, how much would nominal wages need to increase for him to accomplish his objective?
a. 2 percent b. 3 percent c. 5 percent d. 8 percent e. 15 percent