How does the demand for euros change when there is an increase in the European inflation rate relative to the U.S. interest rate?
a. U.S. consumers demand fewer euros, shifting D1 to D2.
b. European products become less expensive to U.S. consumers.
c. U.S. consumers demand more euros, shifting D1 to D2.
d. U.S. goods become relatively more expensive to Europeans.
a. U.S. consumers demand fewer euros, shifting D1 to D2.
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During the recession phase of the business cycle, business firms become pessimistic about their future earning capacity as do banks. Nominal interest rates fall during recessions. Investment lending could be expected to
A) rise if the change in future earnings is thought to be greater than the change in interest payments. B) stay the same. C) fall. D) fall if the change in future earnings is thought to be greater than the change in interest payments.
In the long run,
a. continuing budget surpluses cause interest rates to fall, thereby stimulating investment spending b. any deviation from a balanced budget will plunge the economy into recession c. there can be no economic growth unless the government's budget is in surplus d. there can be no economic growth unless the government's budget is balanced e. government spending must increase as a fraction of GDP
Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should:
A. only buy trip insurance if it costs less than $20. B. not buy trip insurance. C. only buy trip insurance if it costs less than $780. D. only buy trip insurance if it costs less than $50.
Maximum utility is achieved when
A. Total revenue is the greatest. B. Marginal utility is zero. C. The price elasticity of demand is 1.0. D. Total utility equals marginal utility.