The annual rate of inflation is
a. a change in real income of workers from one year to the next.
b. the percentage change in the general level of prices from one year to the next.
c. the increase in the purchasing power of the dollar from one year to the next.
d. the percentage increase in the total value of the goods and services produced from one year to the next.
B
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Figure 14.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. Initially buyers believe that 80% of used cars in the market are lemons (low quality). Compared to the outcome with these initial expectations, how many fewer cars are sold in equilibrium?
A. 50 B. 80 C. 110 D. The number of cars sold in equilibrium is the same as the outcome with neutral expectations.
Risk-averse individuals make risky investments
A) never. B) when the investment's expected return exceeds the return on a non-risky investment. C) when the investment's expected return adequately compensates for the risk. D) only when they are feeling irrational.
Which of the following causes the quantity of money demanded to decrease?
A. an increase in the interest rate B. a decrease in nominal income C. an increase in the price level D. an increase in nominal income
All else equal, if the risk associated with U.S. stocks is perceived to have fallen compared to financial assets in other countries, then the market equilibrium value of the exchange rate for the U.S. dollar will:
A. rise. B. be equal to the value chosen by the Federal Reserve. C. become fixed. D. fall.