In the late 1970s, the inflation rate was over 10 percent per year. Many home mortgage lending institutions had mortgages outstanding that had been made in the 1960s at nominal interest rates of around 5 percent per year
Many of these lending institutions failed. What can explain the high failure rate of lenders in the late 1970s?
The real interest rate the lenders were earning was 5 percent per year minus 10 percent per year inflation, making the real interest rate significantly negative, -5 percent per year. With the negative real interest rate, these financial institutions were incurring losses and eventually many were forced into bankruptcy.
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When the price of a good rises, the resulting change in relative price causes the consumer to reduce his quantity demanded of that good, even when the consumer is income-compensated so that he remains indifferent about the price change. This observation is known as the
a. Giffen good phenomenon. b. law of demand. c. substitution effect. d. income effect.
Stock market price quotations are an example of money serving as a
A) store of value. B) medium of exchange. C) unit of accounting. D) economic value.
Sugar and honey are viewed as substitutes for each other in many cooking applications. If the price of sugar rises, we would expect
a. the demand for honey to increase
b. the demand for honey to decrease
c. the quantity demanded of honey to decrease
d. the price of honey to decrease
e. the quantity demanded of honey to increase
The short-run aggregate supply curve is most likely to shift down (to the right) if:
A. input prices fall. B. productivity falls. C. sales taxes increase. D. wages rise.