With no inflation, a bank would be willing to lend a small business firm $5 million at an annual interest rate of 3 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would charge the firm an annual interest rate of:
A. 7 percent.
B. 3 percent.
C. 4 percent.
D. 10 percent.
Answer: A
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Which of the following is true of opportunism?
a. Opportunism increases the possibility that a party can gain by disregarding the contract. b. Opportunism lowers the cost of negotiation between parties when the contract is incomplete or unclear. c. Opportunism allows parties to maximize the value of their transactions. d. Opportunism leads to mutually beneficial outcomes.
Doctors demand large salaries in part because
a. they are forbidden by U.S. law from receiving economic rent. b. most doctors have backward-bending labor supply curves. c. they participate in the secondary labor market. d. they have made significant investments in human capital.
The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make
a. True b. False Indicate whether the statement is true or false
Which of the following is not correct?
a. If the inflation rate exceeds the nominal interest rate, then the purchasing power of an interest-earning deposit falls over time. b. If there is deflation, then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time. c. The higher the rate of inflation, the smaller the increase in the purchasing power of an interest-earning deposit. d. The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same.