True/False and Explain An increase in savings implies a decrease in consumption and therefore a decrease in GDP.The exchange rate between two countries can be thought of as unrelated to any economic variables.If the real rate of return on investment is higher in the US than in Canada, capital will tend to flow out of the US and into Canada.When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending.A pro-savings policy by the US would likely reduce the US trade deficit.When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output.In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.There are an infinite number of combinations of real interest rates and inflation rates consistent with a nominal interest rate of zero.

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Answered: True/False and Explain An increase…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter19: International Finance And The Foreign Exchange Market

Section: Chapter Questions

Problem 5CQ

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True/False and Explain

An increase in savings implies a decrease in consumption and therefore a decrease in GDP.
The exchange rate between two countries can be thought of as unrelated to any economic variables.
If the real rate of return on investment is higher in the US than in Canada, capital will tend to flow out of the US and into Canada.
When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending.
A pro-savings policy by the US would likely reduce the US trade deficit.
When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output.
In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.
There are an infinite number of combinations of real interest rates and inflation rates consistent with a nominal interest rate of zero.

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