Rank the components of aggregate demand by their sensitivity to changes in the real interest rate. Start with the most sensitive to the least sensitive.
What will be an ideal response?
The most sensitive is investment demand, followed by consumption and net exports. Consumption is affected because higher interest rates mean higher inflation-adjusted payments for goods such as cars, making them cost more. In addition, higher interest rates increase the return to saving and more saving means less consumption. Net exports are affected since the value of the dollar on foreign exchange markets is impacted by the demand for dollars which is affected by the real interest rate. Changes in the value of the dollar will impact both the price of exports as well as imports. Finally government purchases are the least sensitive to changes in the real interest rate.
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When a profit maximizing firm produces, they will be producing at that output at which marginal cost = marginal revenue
A. all of the time. B. some of the time. C. on rare occasions. D. none of the time.
Output per worker hour is known as
A. potential output. B. labor productivity. C. per capita output. D. all of the above.