How are interest rates and inflation rates related?
What will be an ideal response?
If investors in one country worry that their domestic inflation may rise, we would expect interest rates to rise in that country to compensate for the greater inflation, as otherwise the investors would be caught receiving negative real rates of return. Imagine, for example, a country with high inflation and low interest rates. Under such conditions, investors would be receiving negative real rates of return, and will correspondingly avoid investing in that country's bonds, recurring instead to investing in real estate, foreign currencies or precious metals; hoping that the value of these investments will rise at least at the same pace as inflation. Naturally, this would not be equilibrium, and interest rates would have to rise until real interest rates become positive. In summary, interest rates and inflation rates will generally move in tandem, so as to keep real interest rates relatively constant.
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Suppose that when the price of hamburgers increases, the Ruiz family increases their purchases of hot dogs. To the Ruiz family,
A) hamburgers and hot dogs are normal goods. B) hamburgers and hot dogs are substitutes. C) hamburgers and hot dogs are complements. D) hamburgers and hot dogs are inferior goods.
To correct a market failure, society typically relies on
a. the market to correct itself b. individual producers' cost-minimization procedures c. the industry policing itself d. the government to either tax, subsidize, or control output directly e. price to reach equilibrium
Marginal utility is the total amount of satisfaction one receives from the consumption of a certain quantity of a good
a. True b. False Indicate whether the statement is true or false
Which of the following countries have liberalized their economies and substantially improved their economic freedom rating since 1990?
a. Argentina and Brazil b. Zimbabwe and the Republic of Congo. c. Estonia and India d. Italy and France