Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:
A. Gertie should buy the jeans because the price is more than her reservation price.
B. Gertie should not buy the jeans because they will be of lower quality than she expected.
C. Gertie should buy the jeans because the price is less than her reservation price.
D. Gertie should not buy the jeans because the price is not equal to her reservation price.
Answer: C
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Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500. You take $500 out of your passbook savings account and put it in your checking account. What is the overall effect on M1 and M2?
A) M1 rises by $500, M2 falls by $500. B) M1 is unchanged, M2 is unchanged. C) M1 rises by $500, M2 is unchanged. D) M1 is unchanged, M2 falls by $500.
In the hard-landing scenario the ability of the Fed to respond
a. is unlimited b. is constrained because their inclination to raise interest rates would further compound the value of the dollar problem. c. is constrained because their inclination to lower interest rates would further compound the value of the dollar problem. d. limited because the resulting boom would run out of control. e. is constrained because their inclination to lower taxes would depress tax revenues.
Which of the following statements about inflation is correct?
a. Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity. b. People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality. c. Nominal incomes are determined by nominal factors; they are not affected by real factors. d. Inflation does not in itself reduce people's real purchasing power.
Suppose that in Colombia one unit of labor can produce either 8 tons of papayas or 2 tons of bananas and in Brazil one unit of labor can produce either 4 tons of papayas or 1 ton of bananas. Given this information, which of the following statements is true?
A. Columbia has a comparative advantage in producing papayas but not bananas. B. These countries would increase combined consumption if they specialized and traded. C. These countries cannot gain from trading. D. Columbia has a comparative advantage in producing papayas and bananas.