Who gains if inflation turns out to be higher than expected: the lender or borrower? What happens if inflation turns out to be lower than expected?
What will be an ideal response?
Borrowers and lenders normally incorporate an inflation premium equal to the expected rate of inflation into the nominal interest rate. Then, if inflation turns out to be higher than expected, the borrowers have to pay the lender only the agreed-on nominal interest rate, including the premium for expected inflation; they do not have to compensate the lender for the (higher) actual inflation. Thus, the borrower enjoys a windfall gain and the lender loses out. The opposite happens if inflation turns out to be lower than expected.
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The change in cost that results from a one-unit increase in output is called the
A) average fixed cost. B) per-unit variable cost. C) per-unit total cost. D) marginal cost. E) average cost change.
Which of the following did not occur during the early years of the Great Depression?
(a) Marriage rates fell. (b) Birth rates fell. (c) Divorce rates increased. (d) Actually, all of the above occurred.
A vertical supply curve exhibits
A) a constant elasticity of supply. B) a perfectly inelastic supply curve. C) Both A and B are true. D) None of the above.
Double taxation of corporate profits
A. imposes losses on investors’ incentives in corporate stock. B. tends to keep corporations out of low-profit activities. C. makes the allocation of resources more efficient. D. makes issuing new stock prohibitively expensive.