Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then:
A. borrowers are hurt, but lenders benefit.
B. both lenders and borrowers benefit.
C. both lenders and borrowers are hurt.
D. lenders are hurt, but borrowers benefit.
Answer: D
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Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never has been close to extinction. The difference is due to
A) the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo. B) the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo. C) cattle existing in Europe also while buffalo were specific to North America. D) the use of private property rights on cattle and common property rights on buffalo.
As the price level rises, the demand for money
a. decreases because interest rates also increase. b. decreases because consumers buy fewer goods and services. c. increases because more money is needed for each transaction. d. increases because investment spending will also increase.
National defense is a classic example of a public good because
a. there is no market for private security services. b. it is difficult to exclude people from receiving the benefits from national defense once it is provided. c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. d. there are no private firms willing to supply defense goods such as tanks and weapons.
Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?
a. $1,000 (1.06) b. $1,000(1.06) c. $1,000/(1.06) d. None of the above is correct.