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Q. Consider the economy is initially consuming along the intertemporal budget constraint at point A, where no saving occurs. How does a fall in the real interest rate, r, and affect present consumption?
Answer: A diminishes in the real interest rate r causes the budget line to rotate counterclockwise about point A diminish the slope and causing a rise in present consumption.
Q. Explain how the money markets of two countries are linked through the foreign exchange market. Answer: The financial policy actions by the Fed affect the U.S. interest rate
Q. "It is in the interest of each depositor to withdraw her money from a bank if all other depositors are doing the same, even when the bank's assets are sound." Discuss. As par
Q. Using a figure, show that under full employment, a temporary fiscal expansion would increase output (over-employment) but cannot increase output in the long run. Answer: A t
Assume the United States exports 1000 computers at a price of $3000 each and imports 15 UK autos at a price of 10000 pounds each. Assume that the dollar/pound exchange rate is $2 p
A good analysis in increasing cost theory with graphical analysis
Q. Write about the assumptions of the theory of consumer behavior based on the cardinal utility approach. 1. Rationality- It is assumed that the consumer is a rational being in
Q. Other things being equal, a rise in a country's terms of trade enhances its welfare. What could happen if we relax the ceteris paribus assumption, and allow for the law of dema
Question 1 A local manufacturer of work gloves and gardening gloves has been enjoying moderate success in its local markets with a physical sales team. The president is convin
Discuss the differences between Absolute PPP and Relative PPP . Answer: Absolute Purchasing Power Parity (PPP) states that the exchange rate between two currencies equals the
Q. Explain why under fixed exchange rate, monetary policy is ineffective whereas under floating exchange rate it is effective in rising output. Answer: In floating by purchasi
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