Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and reserve-related (central bank) transactions become more negative (or less positive).
b. The GDP Price Index falls, and reserve-related (central bank) transactions remain the same.
c. The GDP Price Index and reserve-related (central bank) transactions remain the same.
d. The GDP Price Index rises, and reserve-related (central bank) transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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All else equal, in an economy with an upward-sloping production function, as an economy accumulates more capital goods,
A) the labor supply must increase. B) real GDP increases. C) the labor supply must decrease. D) the marginal product of capital will increase.
The exchange rate policy of the United States is
A) the EMS. B) a crawling peg. C) a float. D) a fixed rate within a band. E) none of the above