What determines demand and supply in rental markets for capital and land?
What will be an ideal response?
The demand for capital depends on the value of marginal product of capital; the demand for land depends on the value of marginal product of land. The higher the marginal product of capital or land, the greater the demand for capital or land. Additionally the demand for capital depends on the rental rate of capital and the demand for land depends on the rental rate of land. The higher the rental rates, the lower the quantities demanded. The supply of capital depends on the rental rate of capital. The higher the rental rate of capital, the greater is the quantity of capital supplied. The supply of land, however, is perfectly inelastic because its quantity is fixed.
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Loretta agrees to lend Ted $500,000 to buy computers for his consulting firm. They agree to a nominal interest rate of 8%. Both expect the inflation rate to be 2%
(a) Calculate the expected real interest rate. (b) If inflation turns out to be 3% over the life of the loan, what is the real interest rate? Who gains from unexpectedly high inflation, Loretta or Ted? (c) If inflation turns out to be 1% over the life of the loan, what is the real interest rate? Who gains from unexpectedly low inflation, Loretta or Ted?
Suppose that Trey spends all of his income on vacation trips and textbooks. If the price of a trip is $200 and the price of a textbook is $50, then the slope of his budget line (assuming vacation trips are measured on the vertical axis) would be
a. -4 b. 4 c. 0.25 d. -1.75 e. -0.25
In response to the Great Recession of 2007-2009, when did the Federal Reserve first cut the federal funds rate to zero?
a. December 2007 b. June 2008 c. December 2008 d. January 2010
When people make a decision to not participate in a program unless they actively enroll for it, program participation is:
A. likely to be lower than if people were automatically enrolled and had to actively opt-out of participating. B. exclusive, which always makes it more attractive to people. C. likely to be the same as if people were automatically enrolled and had to actively opt-out of participating. D. likely to be higher than if people were automatically enrolled and had to actively opt-out of participating.