According to the rational-inattention theory, people
A. do not always have all the knowledge about the economy to form inflation expectations.
B. are always irrational in forming inflation expectations.
C. will never change their inflation expectations.
D. are sometimes rational and sometimes irrational in forming inflation expectations.
Answer: A
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If the nominal interest rate is 4 percent and the inflation rate is 1 percent, then the real rate of interest is
A) 1 percent. B) 3 percent. C) 4 percent. D) 5 percent.
Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?
A) Most countries do not impose barriers to trade. B) Some goods and services produced in any country are not traded internationally. C) Consumer preferences for goods and services across countries are very similar. D) Most countries have free markets with little, if any, government regulation.
Which of the following has been a significant factor in DVDs replacing video cassettes (VCs) in the retail home video market?
A) DVDs are now less than one-half the price of VCs. B) A scarcity of production capacity has curtailed the manufacture of VCs. C) Most consumers perceive DVD sound and video reproduction to be of higher quality. D) The price of DVD players has increased dramatically.
Would you expect a tax on cigarettes to be more effective at discouraging consumption over the long run or the short run?
A. Short run because demand becomes more elastic over time B. Long run because demand becomes less elastic over time C. Short run because demand becomes less elastic over time D. Long run because demand becomes more elastic over time