Your artistically talented friend Pablo offers to sell you one of his paintings that he knows you enjoy looking at. You value this enjoyment at $100 and then expect to sell the painting at the end of one year for $500. You would buy the painting when interest rates are at 5% so long as the price he asks for is no greater than
a. $600.
b. $576.
c. $500.
d. $400.
b. $576.
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Frictional unemployment comes about because of
A) friction between labor and management. B) a mismatch between skills and available jobs. C) normal labor market turnover. D) a general economic slowdown.
If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is
A) -3 percent. B) -2 percent. C) 3 percent. D) 7 percent.
A true cost-of-living adjustment (COLA) in response to a change in prices would compensate consumers so that they would be able to
A) purchase the same bundle they purchased before prices changed. B) achieve the same level of utility they did before prices changed. C) face the same choices they did before prices changed. D) achieve an increase in utility that is equal to the rate of inflation.
When firms in an industry produce differentiated products,
a. long-run economic profit will always be zero b. short-run economic profit will always be positive c. the demand curves facing firms will always be perfectly elastic d. the demand curves facing firms will always be downward-sloping e. new firms will always have an incentive to enter the industry in the long run