Discuss the different effects on the domestic interest rates when prices are assumed flexible and when they are assumed to be sticky
What will be an ideal response?
When prices are flexible, a decrease in the domestic money supply has no effect on the interest rate, because of the immediate decrease in the price level. However, when prices are assumed to be sticky, a decrease in the domestic money supply will cause the interest rate to rise, because the sticky domestic price level leads to an excess demand for real money balances at the initial interest rate.
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If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by:
A. $1 billion. B. $0.9 billion. C. $10 billion. D. $9 billion.
Answer the following statements true (T) or false (F)
1) The vast majority of the labor forces of the low-income DVCs are engaged in agriculture. 2) Most of the DVCs of the world are located in Western Europe. 3) DVCs tend to have permanent shortages of farm labor. 4) Most nations of the world are now IACs, not middle- and low-income DVCs. 5) The most important growth obstacle common to all DVCs is the lack of desire to increase their standards of living.