What is the Fisher Effect? Provide an example
What will be an ideal response?
All else equal, a rise in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer. Similarly, a fall in the expected inflation rate will eventually cause a fall in the interest rate.
Ex: If the expected U.S. inflation were to rise permanently from ? to ? + ??, current dollar interest rates R$ would eventually catch up to the higher inflation, rising by a value ?R$ = ?? in accordance with the Monetary Approach that in the long run purely monetary developments should have no effect on an economy's relative prices since the real rate of return on dollar assets would remain unchanged.
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A merger between a shoelace company and a soup company might be undertaken to
a. eliminate a potential competitor b. enhance a supplier-purchaser relationship c. diversify assets and production d. raise the Herfindahl-Hirschman Index in the shoelace industry e. raise the concentration ratio in the soup industry
The major component of all activities once a crop, livestock, or fiber product leaves the farm gate is
A) labor. B) advertising. C) packaging and transportation. D) none of the above.
If workers and firms can fully anticipate the price change in the economy from a particular policy
A) then the policy will not impact employment levels. B) then the policy will not cause inflation. C) then the policy will be effective at changing employment levels. D) then the policy will be crowded out by the exchange rate.
Monetary restraint and fiscal stimulus will
A) both lower the real rate of interest. B) both raise the real rate of interest. C) have differing effects on the real rate of interest. D) Both raise the level of output.