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
C
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Suppose job search has decreased over the last several years. This decrease could be a result of
i. a change in unemployment benefits. ii. a positive structural change. iii. a higher inflation rate. A) i only B) ii only C) i and iii D) i and ii E) ii and iii
If the production of a good creates large spillover benefits on others, the government might correct for the:
a. overallocation of resources to its production by subsidizing it b. overallocation of resources to its production by imposing a tax on it. c. underallocation of resources to its production by subsidizing it. d. underallocation of resources to its production by imposing a tax on it.
The Phillips curve
a. is the same as a country's production possibilities frontier.. b. is upward sloping. c. illustrates the Fed's choice between inflation and unemployment in the long run. d. illustrates the Fed's choice between inflation and unemployment in the short run. e. illustrates the Fed's choice between inflation and tax revenues in the short run.
Fire protection is a
a. club good, because it is excludable but not rival in consumption. b. club good, because it is rival in consumption but not excludable. c. a public good, because it is excludable but not rival in consumption. d. a public good, because it is rival in consumption but not excludable.