Why would workers and retirees want to have their wages and benefits indexed to the Consumer Price Index (CPI)?
a. To lower their purchasing power during years of rising prices
b. To maintain their purchasing power during years of rising output
c. To maintain their purchasing power during years of declining output
d. To increase their purchasing power during years of negative inflation
e. To maintain their purchasing power during years of rising prices
E
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The average product curve
A) initially falls then rises. B) rises as average variable cost increases. C) initially rises and then falls. D) shows how productivity changes as output changes. E) intersects the marginal cost curve when the average product curve is at its maximum.
In the above figure, at the real wage rate of $50
A) there is a surplus of 100 billion hours per year. B) there is a shortage of 100 billion hours per year. C) there is a surplus of 60 billion hours per year. D) there is shortage of 20 billion hours per year.
Limits on the flow of foreign exchange and financial investment across countries are called
A) currency restrictions. B) credit constraints. C) fixed exchange rates. D) capital controls.
Parvez is trying to decide whether or not he should lend $1,000 to Eli for a year. Eli would pay a fixed nominal interest rate of 8 percent. Parvez expects the inflation rate to be 4 percent for the year. If he does not lend the $1,000 to Eli, Parvez will purchase an indexed savings bond that pays an interest rate of 4 percent, or he will put the money in a (nonindexed) savings account earning 6
percent. Parvez a. will earn 4 percent in real terms if he loans Eli the money, 0 percent in real terms if he buys the bond, and 6 percent in real terms if he puts the money into a savings account b. is better off holding his money as cash c. is indifferent between lending the money to Eli and buying the bond because the real interest rate is the same in either case d. should purchase the bond because it earns the highest real rate of interest e. earns the highest real rate of interest if he puts his $1,000 into a savings account