Consider someone who borrows $10,000 to buy a car at a fixed interest rate of 4.5%. If inflation is 3% at the time the loan is made, then the loan must be repaid at a real interest rate of ______. But if inflation rises to ______, then the real interest rate on the loan is zero.
a. 1.5%; 7.5%
b. 1.5%; 4.5%
c. 3%; 7.5%
d. 4.5%; 7.5%
b. 1.5%; 4.5%
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In one day, Sue can change the oil on 20 cars or change the tires on 20 cars. In one day, Fred can change the oil on 20 cars or change the tires on 10 cars. Sue and Fred can gain from trade if Sue changes the ________ and Fred changes the ________
A) tires; oil B) oil; oil C) oil; tires D) tires; tires
If the market supply increases and, simultaneously, market demand decreases, the new equilibrium will show:
a. market price will decrease, and market quantity exchanged could increase, decrease, or remain unchanged. b. market price will increase, and market quantity exchanged will decrease. c. market price will increase, and the quantity exchanged could increase, decrease, or remain the same. d. market price could increase, decrease, or remain the same, and quantity exchanged will increase. e. market price will increase, decrease, or remain the same, and quantity exchanged will decrease.
Fiscal policy analysis indicates that large tax increases during a severe recession will result in
a. an increase in the incentive to earn and the maintenance of a balanced federal budget. b. higher tax revenues and an expansion in government spending. c. smaller budget deficits, which will speed an economic recovery. d. a reduction in aggregate demand and a worsening of the recession.
Betty's Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is thrown away. A loaf of bread costs Betty $2.00 to produce, and she prices loaves of bread at $3.50 per loaf. Suppose near the end of one day Betty still has 12 loaves of bread on hand. Which of the following is correct?
a. Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price. b. Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the bread costs to make. c. Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something. d. Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she sells all of her bread each day.