An increase in credit market frictions
A) decreases labor supply.
B) decreases labor demand.
C) decreases consumption demand.
D) decreases investment demand.
D
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"The bias in the CPI distorts private contracts because a future payment that is linked to the CPI will be raised above the true increase in the price level." Is the previous sentence true or false?
What will be an ideal response?
Common pool resources differ from pure public goods in that
A) common pool resources are resources that cannot be renewed but the production of pure public goods can be increased at any time. B) common pool resources are nonexcludable while pure public goods are excludable to those who do not pay of the good. C) unlike pure public goods, common pool resources are rival in consumption. D) common pool resources are collectively owned by a group of people while pure public goods are owned by the government.
Fresh Flour makes baking flour and sells its flour in 4 pound sacks or bags. The managers of Fresh Flour are considering whether the firm should make or buy the flour sacks. To make the sacks, Fresh Flour needs a $500,000 piece of equipment. Using this equipment, Fresh Flour can make a flour sack for $0.01 and, for simplicity, ignore taxes and assume that the $0.01 cost includes depreciation and
all other costs. Fresh Flour would finance the $500,000 investment using its own funds and, if it purchased the flour sacks from another firm, it would pay $0.19 a flour sack. The life span of the equipment is 10 years and it has no salvage value at the end of the ten years. If the discount rate is 6 percent and the firm needs 400,000 flour sacks a year. Which of the following statements is true? A) Fresh Flour should not invest in the equipment because the net present value is negative. B) Fresh Flour should invest in the equipment because the net present value is negative. C) Fresh Flour should not invest in the equipment because the net present value is positive. D) Fresh Flour should invest in the equipment because the net present value is positive.
Financial intermediaries
A. Always allocate funds to the least productive investments. B. Transfer purchasing power from spenders to savers. C. Spread the risk of investment failure over many individuals. D. Increase search and information costs for savers and investors.