Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%. They both expected the inflation rate to be 2% during the one-year period. However, during that year the inflation rate was actually 1%. Which of the following has occurred?
a. The unexpectedly low inflation rate has redistributed $1 from Mike to Renee
b. The unexpectedly low inflation rate has redistributed $5 from Mike to Renee
c. The unexpectedly high inflation rate has redistributed $1 from Mike to Renee
d. There have not been any redistribution costs to either party
e. The unexpectedly low inflation rate has redistributed $1 from Renee to Mike
A
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Refer to Figure 18.1. The United States has a comparative advantage in the production of
A) bicycles. B) hang gliders. C) both bicycles and hang gliders. D) neither bicycles nor hang gliders.
What happens to the demand for Xbox games if the price of an Xbox falls?
A) The demand for Xboxes decreases because the price of a substitute falls. B) The demand for Xboxes increases because the price of a complement falls. C) The demand for Xboxes decreases because the price of a complement falls. D) The demand for Xboxes remains unchanged.
Assume that an economy's real GDP multiplier is 4 . If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?
a. $500 billion spending cut. b. $500 billion spending increase. c. $125 billion spending cut. d. $125 billion spending increase. e. $2,000 billion spending cut.
Ricardian equivalence can be said to hold if:
a. taxation has greater effect on private spending than government borrowing. b. taxation has a lesser effect on private spending than government borrowing. c. government borrowing does not affect private consumption while taxation has a negative impact on private consumption. d. government spending activities financed by taxation and those financed by borrowing have the same effect on private spending. e. government spending activities financed by taxation and those financed by borrowing have no effect on private spending.