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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.
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Q. Using figures for both the short run and the long run, show the effects of a permanent increase in the U.S. money supply. Try to line up your figures to the short and long run
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Q. It is probable that trade based on external scale economies can leave a country worse off than it could have been without trade. Illustrate how this could happen. Answer:
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