If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?
a. 10.5 percent
b. 20 percent
c. 5.5 percent
d. 3.2 percent
c
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The bowed shape of the per-worker production function is caused by
A) wealth effects that reduce labor supply. B) diminishing marginal productivity of capital. C) increasing marginal productivity of labor. D) increasing marginal productivity of capital.
The decision to expand the size of your factory is a long-run decision
Indicate whether the statement is true or false
The downside (negative aspect) associated with a free and floating exchange rates is that
a. countries appreciate their rates so that the float is only upward b. they depend on trade agreements that can, and have been, broken c. whether they increase or decrease, it takes currency to float the rate d. arbitrage takes advantage of different opportunity costs e. it creates an uncertainty about future rates that can reduce trade
According to the income effect, when the price of automobiles rises, people buy fewer automobiles because
a. they substitute other forms of transportation for driving. b. the nominal amount of their paychecks is smaller. c. the purchasing power of their income is reduced. d. their demand for automobiles is very elastic.