Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan
a. What was the expected real interest rate?
b. What was the actual real interest rate?
c. Who benefited and who lost because of the unexpected inflation?
a. The expected real interest rate was 4 percent (6-2).
b. The actual real interest rate was 1 percent (6-5).
c. George, the banker, lost because he received less real interest income than he expected. Jay and Joyce gained because they paid less real interest income than they expected.
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What is a balance of payments system, and what three types of international transactions are typically found in the balance of payments?
What will be an ideal response?
When a market is in equilibrium,
a. producers earn profits b. the minimum possible price is achieved c. there is no incentive for consumers or producers to change their current behavior d. excess demand is less than excess supply e. the maximum possible price is achieved
Suppose the government of a country wants to increase the aggregate demand of its economy by $10 billion at all price levels. However, it currently has a balanced budget with no surplus and is unwilling to borrow money to finance fiscal policy. The government could still accomplish its goal by increasing government purchases by ________ and increasing taxes by $10 billion.
A. $20 billion. B. $10 billion C. $15 billion. D. $5 billion
Which of the following statements is true?
A) An optimizing individual is also likely to exhibit rationality. B) Optimization requires individuals to foresee the future perfectly. C) The less information that is available, the easier it is to make optimal decisions. D) An optimizing individual need not consider the risks involved in various choices.