Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds
What will be an ideal response?
The real interest rate determines the quantity of loanable funds demanded. There is an inverse relationship between the real interest rate and the quantity of loanable funds demanded. Expected profit affects investment and, because investment is a major source of the demand for loanable funds, the expected profit rate affects the demand for loanable funds. An increase in the expected profit from investing increases investment and thereby increases the demand for loanable funds. Hence there is a positive relationship between the demand for loanable funds and the expected profit rate.
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"By producing at an output rate at which marginal revenue equals marginal cost, a firm is definitely making positive economic profits." Do you agree or disagree? Why?
What will be an ideal response?
If the economy is in recession, explain what advice you would give the President, if you were a monetarist economist. What if you were a Keynesian?
A tax
a. lowers the price buyers pay and raises the price sellers receive. b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive. d. Both b) and c) are correct.
The rate of inflation, excluding the effects of food and energy prices, is _____.
(A) Hyperinflation (B) The core inflation rate (C) The price index (D) The wage-price spiral