Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then
A) borrowers gain 1% of the loan value.
B) lenders gain 1% of the loan value.
C) borrowers lose 3% of the loan value.
D) lenders gain 3% of the loan value.
Answer: A
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When actual output equals potential output, there is ________ output gap and the inflation rate will ________.
A. no; be equal to the expected rate of inflation B. an expansionary; exceed the expected rate of inflation C. an expansionary; be lower than the expected rate of inflation D. a recessionary; exceed the expected rate of inflation
In periods of inflation, wages generally increase to compensate for higher prices
Indicate whether the statement is true or false
If European economies experience a strong economic recovery, U.S. net exports will
a. increase and AD will shift outward. b. increase and AD will shift inward. c. decrease and AD will shift inward. d. decrease and AD will shift outward.
Which of the following is a characteristic of a competitive price-taker market?
A. Profit maximizing firms in the market will expand output until price equals average variable cost. B. The market demand curve for the product is a horizontal line. C. There are many firms in the market, each producing a small share of total market output. D. The product produced by each of the firms is differentiated.