The nominal interest rate is 7%, today's price level is 150, and you expect the price level to be 156 one year from now. What is the expected inflation rate? What is the expected real interest rate?
What will be an ideal response?
Expected inflation rate = 156/150 - 1 = 0.04 = 4%; expected real interest rate = 7% - 4% = 3%.
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A continuing, long-term, large decline in the demand for coffee will not cause the price of coffee to fall much over the years if
A) coffee is not scarce. B) the demand for coffee is highly elastic. C) the demand for coffee is highly inelastic. D) the supply of coffee is highly elastic. E) the supply of coffee is highly inelastic.
The perfectly competitive firm maximizes profits when
A) it produces and sells the quantity at which the difference between marginal revenue and marginal cost is the greatest. B) it produces and sells the quantity at which marginal revenue and marginal cost are equal. C) it produces and sells the quantity at which the difference between average revenue and average cost is the greatest. D) it produces and sells the quantity at which the difference between price and average cost is the greatest.
An individual who is a risk lover
a. values a lottery at more than its expected value b. values a lottery at exactly its expected value c. values a lottery at less than its expected value d. tends to play lots of lotteries
Suppose an economy originally in long-run equilibrium experiences a decrease in aggregate demand. According to the classical model
A. real Gross Domestic Product (GDP) will fall, and then the price level will fall also. B. the price level will not change but real Gross Domestic Product (GDP) will fall. C. real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and services will stay the same. D. real Gross Domestic Product (GDP) will not change but the price level will fall.