A student receives a five-year loan to pay for a $2,000 used car. The lender and the student agree to an 8% interest rate on a fixed-rate loan. Expected inflation was estimated to equal 2.5%, but unexpectedly decreases to 2%. Which of the following is true?
A. The real interest rate decreased.
B. Both the student and the lender benefit.
C. The lender is made worst off because his real return on the car loan is lower.
D. The student is made worse off because her real cost of borrowing is higher.
Answer: D
You might also like to view...
If a price floor of $23 were placed in the market in the graph shown:
A. a shortage of 37 would occur.
B. a shortage of 10 would occur.
C. a shortage of 27 would occur.
D. None of these would occur.
A 10% increase in the price of pizza causes a 10% drop in the quantity of both pizza and beer sold. Describe elasticities and the nature of the two products.
a. The price elasticity of demand for pizza is equal to 1 and the cross price elasticity of beer with respect to the price of pizza is also 1. In this example, beer and pizza complements. b. The price elasticity of demand for pizza is equal to 1 and the cross price elasticity of beer with respect to the price of pizza is (-)1. In this example, beer and pizza complements. c. The price elasticity of demand for pizza is equal to (-)1 and the cross price elasticity of beer with respect to the price of pizza is 1. In this example, beer and pizza complements. d. The price elasticity of demand for pizza is equal to (-)1 and the cross price elasticity of beer with respect to the price of pizza is also (-)1. In this example, beer and pizza complements.
Producers of computer software are plagued with the problem of “pirating,” that is, many people copy software legally purchased by others. The industry estimates that for each legal copy of a program, there are two pirated copies in use. The industry wants strict laws for the enforcement of its “intellectual property rights,” but enforcement is obviously very difficult. Economists call this problem
A. depletability. B. externality. C. durability. D. nonexcludability.
Good X is a normal good and its demand is given by Qxd = ?0 + ?XPX + ?YPY + ?MM + ?HH. Then we know that
A. ?Y > 0. B. ?X > 0. C. ?M > 0. D. ?H > 0.