A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50 percent. Which of the following is the most likely explanation of this finding?
A. the principle of opportunity cost
B. the principle of diminishing returns
C. the marginal principle
D. the spillover principle
Answer: B
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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%.
Explain the economic concept of convergence
What will be an ideal response?
The cost of inflation to society includes I. the opportunity costs of resources used by people to protect themselves against inflation. II. the diversion of productive resources to forecasting inflation
A) I only B) II only C) both I and II D) neither I nor II
Other things the same, when the interest rate rises,
a. people would want to lend more, making the supply of loanable funds increase. b. people would want to lend less, making the supply of loanable funds decrease. c. people would want to lend more, making the quantity of loanable funds supplied increase. d. people would want to lend less, making the quantity of loanable funds supplied decrease.