Explain why an increase in expected inflation will result in an increase in nominal interest rates, holding other factors constant.
What will be an ideal response?
This follows from the Fisher equation that says the nominal interest rate equals the sum of the real interest rate and the expected rate of inflation. So, for any given real interest rate, an increase in the expected rate of inflation will cause the nominal interest rate to increase.
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A monopoly firm
a. has a short-run supply curve that slopes upward. b. is a price taker. c. does not have a supply curve. d. is at the mercy of the market-determined price.
Which of the following is not correct?
a. An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission. b. The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard. c. An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage. d. One interpretation of gift giving is that it reflects asymmetric information and signaling.
A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a
A. progressive tax on personal income. B. regressive tax on corporate income. C. sales tax. D. head tax.
When a price floor is set for a market, quantity supplied will be:
A. Less than the equilibrium quantity, and price will be less than the equilibrium price. B. Less than the equilibrium quantity, and price will be greater than the equilibrium price. C. Greater than the equilibrium quantity, and price will be less than the equilibrium price. D. Greater than the equilibrium quantity, and price will be greater than the equilibrium price