“Unexpected inflation is more beneficial to those who save than those who borrow.” Evaluate this statement. How does your answer change if the inflation is expected?
What will be an ideal response?
The statement is incorrect. Savers are actually hurt by unexpected inflation because it reduces the real rate of return they receive on their savings, or if they don’t receive a rate of return on their savings, it reduces the purchasing power of their savings. Borrowers actually benefit from unexpected inflation because it reduces the amount they have to pay back because dollars are cheaper due to the inflation. However, if inflation is expected, inflation does not hurt the saver or benefit the borrower. Anticipating the rate of inflation permits savers to make adjustments in their savings—like requiring a higher interest rate on savings accounts—to allow for inflation. Borrowers do not benefit because lenders allow for inflation in their borrowing agreements.
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A) more adverse selection. B) additional moral hazard. C) positive externalities. D) greater asymmetric information.
The slope of a many-worker consumption possibilities is determined by the relative price of
A. the good that is most in demand. B. both goods in the world market. C. both goods in the domestic market. D. the good that is least in demand.
When a firm's LRAC curve is still declining when it intersects the market demand curve, we call the firm a(n)
A. natural monopolist. B. oligopolist. C. perfect competitor. D. monopolistic competitor.
If you were going to contract a facility by removing 10% of the older seats, but the costs of providing ushers and other personnel to deal with the remaining seats was exactly the same (on a per seat basis) as it had been, the new MC curve would look like the previous one, except that it would
A. just shift to the right. B. just shift up. C. no longer be a backward L but would be upward sloping once the old capacity was reached. D. just shift to the left.