Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the
Three-Sector-Model?
a. The quantity of real loanable funds per time period rises and nominal value of the domestic currency falls.
b. The quantity of real loanable funds per time period falls and nominal value of the domestic currency remains the same.
c. The quantity of real loanable funds per time period rises and nominal value of the domestic currency remains the same.
d. The quantity of real loanable funds per time period falls and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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An appropriate Keynesian response to an inflationary gap is to: a. decrease net taxes
b. decrease government spending. c. decrease interest rates. d. decrease the cash reserve ratio.
Accounting costs are often unsatisfactory from the economist's point of view because
a. they fail to allow for depreciation, the wearing out of capital assets during a period. b. they often exclude the opportunity costs of the firm's equity capital. c. accountants attempt to minimize costs in order to make profits look good. d. accounting procedures are designed to overstate costs in order to minimize business tax liability.