How is inflation related to interest rates?
What will be an ideal response?
People base their decisions on borrowing, lending, and investing on the basis of the real interest rate. If there is anticipated inflation, the nominal rate of interest will equal the real rate of interest plus the anticipated inflation rate. So, interest rates vary directly with anticipated inflation. Unanticipated inflation leads to a real interest rate different from what people thought, and the decisions people made turn out to be mistaken.
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To find an economy's long-run equilibrium price level, locate the point where ________ and ________ cross and look to the left
A) long-run aggregate supply; aggregate demand B) aggregate demand; short-run aggregate supply C) aggregate demand; price level D) demand; supply
When there is no Ricardo-Barro effect, a government budget surplus ________ the real interest rate because the ________ loanable funds increases
A) lowers; supply of B) lowers; demand for C) raises; supply of D) raises; demand for E) None of the above answers is correct because the real interest rate does not change.
Which of the following models results in the greatest deadweight loss assuming a fixed number of firms with identical costs and a given demand curve?
A) Cournot B) Stackelberg C) Monopoly D) Perfect competition
Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then
a. employment and production rise. b. employment rises and production falls. c. employment falls and production rises. d. employment and production fall.