Assume the one-year interest rate on a bond is 8% and the expected one-year rate a year from now is 12%. According to the expectations theory of the term structure of interest rates, the two-year rate will be
A. 8%.
B. 10%.
C. 12%.
D. 22%.
Answer: B
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MPP is the additional output that results from a one-unit increase in use of the input.
Answer the following statement true (T) or false (F)
Which of the following statements is not correct?
a. If the signaling theory of education is correct, additional schooling does not affect worker productivity but rather signals a correlation between natural ability and education. b. The theory of efficiency wages suggests that firms pay higher wages to workers in order to induce workers to be more productive. c. Discrimination against workers of a certain race or ethnicity is often in conflict with a firm's desire to maximize profits. d. The theory of compensating wage differentials reflects the different skills, abilities, and productivity of workers.
A bowed outward production possibilities curve occurs when
A) opportunity costs are constant. B) resources are not scarce. C) additional units of output of one good necessitate increased reductions in the other good. D) the society is operating on the production possibilities curve.
Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then
A) the Fed's contractionary policy may result in too large of a decrease in GDP. B) the Fed's contractionary policy may result in too small of an increase in GDP. C) the Fed's expansionary policy may result in too small of a decrease in GDP. D) the Fed's expansionary policy may result in too large of an increase in GDP.