Suppose the nominal annual interest rate on a 2-year loan is 8% and lenders expect inflation to be 5% in each of the two years. The annual real rate of interest is
A. 3%.
B. 6%.
C. 8%.
D. 2%.
Answer: A
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Assume a perfectly competitive firm is producing a level of output at which MR < MC. What will happen as the firm moves to its profit-maximizing equilibrium?
A) Marginal revenue will rise. B) Marginal revenue will fall. C) Marginal cost will rise. D) Marginal cost will fall.
Suppose the price of an item in a perfectly competitive market is $3. For a firm in this market, MC = MR at an output of 100 units. The average total cost at this output level is $4 per unit, and TVC is $80. We may conclude that
A) the firm should shut down because TC > TR. B) the firm should continue to produce because P>AVC. C) the firm should shut down because its TFC is $320 and its TC is $400. D) the firm should shut down because other firms will enter the industry as the market is perfectly competitive.
If a public utility is subject to average-cost pricing regulation, it will: a. earn a normal rate of return
b. produce the socially efficient level of output. c. suffer economic losses without a subsidy. d. earn an above-normal rate of return.
What is meant by an asset bubble?