Gladys agrees to lend Kay $1,000 for one year at a nominal rate of interest of 5 percent. At the end of the year prices have actually risen by 7 percent.
A. Gladys earns extra real income.
B. Kay loses extra real income.
C. Kay receives extra real income.
D. Neither party gains or loses if the loan is repaid.
Answer: C
You might also like to view...
In the short run, with prices fixed, how would an increase in government spending affect the DD-AA equilibrium?
A) It will increase output and appreciate the currency. B) It will increase output and depreciate the currency. C) It will decrease output and appreciate the currency. D) It will decrease output and depreciate the currency. E) It will increase output and have no effect on the currency.
Which of the following statements is not correct?
a. Private markets tend to over-produce products with negative externalities. b. Private markets tend to under-produce products with positive externalities. c. Private parties can bargain to efficient outcomes even in the presence of externalities. d. Private parties are usually more successful in achieving efficient outcomes than government policies in the presence of externalities.
If the budget deficit for each year is held to a constant nominal value during constant inflationary times, then the inflation-corrected or real value of the total debt would
A. Rise at a constant rate. B. Initially rise but eventually would become negative. C. Rise at a decreasing rate. D. Begin to fall, but then continually rise.
Purely competitive industry X has constant costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be:
A. an increase in output and in the price of the product. B. an increase in output, but not in the price, of the product. C. a decrease in the output, but not in the price, of the product. D. a decrease in output and in the price of the product.