Suppose you choose an investment that has historically generated an averagenominal return of 5 percent per year. Explain how inflation and risk may affect your future real rate of return on this investment
What will be an ideal response?
Inflation reduces the buying power of money. Any appreciation in the value of the final balance will need to be adjustedto account for rising prices. In other words, if the prices of goods and services increase during the holding period, the real rate of return on the initial investment is lower than the nominal rate of return.The real rate of return is the nominal rate of return minus the inflation rate.
Risk implies that the return on the investment is not guaranteed. Sothe rate of return that you experience may be greater or lower than the historical average rate of return.
A-head: INVESTMENT RETURNS
Concept: Inflation, risk
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Suppose the market for cement is such that the government does not interfere in price determination but plays an important role in the provision of property rights
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Which of the following creates an incentive to increase the amount of an activity?
A) an increase in the marginal cost of the activity and a decrease in the marginal benefit of the activity B) a decrease in the marginal cost of the activity and an increase in the marginal benefit of the activity C) constant marginal cost and constant marginal benefit of the activity D) None of the above create an incentive to increase the amount of an activity.
Which of the following statements regarding cartels is not correct?
A) Cartels are sometimes difficult to maintain because a member can cheat by raising its price above the agreed price. B) Cartels restrict industry output in order to raise price. C) Cartels are inherently stable, because oligopolistic firms rarely change price. D) are easier to establish and maintain when the cost functions of the individual members are more similar to one another.
An HVAC company is selling heating and cooling equipment. It has separate sales and marketing units. The marketing unit would want to
a. Price aggressively to ensure sales are made b. Price less aggressively to ensure that profitable sales are made c. Price at cost to maximize sales d. None of the above