If the Fed's policy reaction function equals r = .02 + p, where r is the real interest rate, p is the inflation rate. When the inflation rate is zero, then the real interest rate will:
A. set to equal 2%.
B. set equal zero too.
C. set to equal 4%
D. be below the target value for the real interest rate.
Answer: A
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Indicate whether the statement is true or false
Louise Bakery sells cupcakes that have an equilibrium price of $5.00 per cupcake and an equilibrium output of 300 cupcakes. Which of the following is likely to be true when the government imposes a tax of $0.75 per cupcake? a. Producer and consumer surplus will increase. b. Producer and consumer surplus will decline. c. Equilibrium price will decrease
d. Equilibrium output will increase.
What quantity of output and price do they try to set, when a group of oligopoly firms form a cartel? Will there be any changes in the price and quantity supplied if the cartel gets broken down?
What will be an ideal response?