Inflation reduces economic efficiency because it does each of the following except:
A. distort incentives through interaction with the tax laws.
B. change relative prices.
C. obscure information transmitted by prices.
D. induce people to minimize cash holdings.
Answer: B
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If the Real GDP increases from one year to the next, we could conclude the country experienced:
A. inflation and no change in output. B. an increase in output and no change in prices. C. a definite increase in output and may have experienced an increase in prices. D. definite inflation and may have experienced an increase in output.
If you were a professor of economics and asked the class what would happen when the Fed raises the legal reserve requirement, you would hope to hear that the
a. banks must reduce the amount of loans they make b. banks can increase the amount of loans they make c. banks must reduce the interest rate they charge on the loans they make d. banks can raise the interest rate on loans they make e. banks must reduce the federal funds rate they charge to other banks
Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,
a. Karen should pay Danny $400 so that she may keep her cat. b. Karen should pay Danny $350 for tissues and allergy medication. c. Danny should pay Karen $325 to give away her cat. d. Danny should move.
The government regulates food additives
A. To keep food producers from dominating their markets. B. To prevent externalities. C. To restrain the market power of food producers. D. To assess their safety.