The real balances effect predicts that higher prices:
A. make people worse off by reducing the value of their wealth, leading them to save more and spend less.
B. make people worse off by reducing the value of their wealth, leading them to save less and spend more.
C. make people better off by increasing the value of their wealth, leading them to save less and spend more.
D. increase borrowing, leading to higher interest rates and less investment.
Answer: A
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Theory in economics
a. involves some simplification of reality b. bears no relation to reality c. approaches reality in all its complexity d. involves so much distortion of reality that it is worthless e. focuses on the unique aspects of each situation
The payment of a given sum of money each year that continues indefinitely into the future is known as
a. a perpetuity b. a lottery c. a term payment d. a permanent annuity e. an indefinite annuity
If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm
A) is earning a profit. B) should shut down. C) is incurring a loss. D) is breaking even.
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is KGC's average cost function?
A. AC = (50,000/Q) + 50 + 0.005Q B. AC = (20,000/Q) + 30 + 0.005Q C. AC = (50,000/Q) + 30 + 0.0025Q D. AC = 50,000 + 30Q + 0.0025Q2