Inflation can reduce the true cost of debt, and policymakers lower interest rates to encourage borrowing. Is it a good idea then to always take advantage of lower interest rates to borrow and rely on inflation to reduce the cost of debt and to increase your ability to repay the loan?
What will be an ideal response?
While this seems like a good strategy it is not likely to work. First off, long term increases in real wages are tied to productivity and not inflation. Also, if central bankers are doing their jobs, they will keep inflation at a modest level, so hoping that inflation will pay off loans is a strategy that is not likely to work, and if an individual takes on a lot of debt, they may find themselves in a very difficult position.
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If investment in an economy falls, which of the following is likely to happen?
A) Labor demand will increase. B) The revenue of firms in the economy will fall. C) Asset prices will rise. D) The number of mortgage defaults will fall.
Mark owns a cattle ranch near Hugo, Oklahoma. Mark is currently producing beef at an output level where marginal revenue exceeds marginal cost. In order to maximize his profit, Mark should
A) not change his output. B) decrease his output. C) increase his output. D) shut down his ranch. E) probably change his output, but more information is needed to determine if he should increase, decrease, or not change it.
From the 1960s through the 1990s military expenditures increased as a percentage of GDP and they were a major influence in the continued growth of government outlays
a. True b. False
Michelle invested $50 in a project that has a 40% chance of being worth $80 and a 60% chance of being worth $20. One can conclude that Michelle is
A) risk averse. B) risk neutral. C) risk loving. D) extremely wealthy.