In developing economic theories, principles, or models, economists:
a. ignore important variables.
b. remove clutter and simplify.
c. include all possible factors.
d. consider every possible outcome.
b. remove clutter and simplify.
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Suppose an individual firm is comparing two investments, a one year bond from a U.S. firm paying 4% or a one year bond from a German firm which is paying 6%. The current dollars-per-euro rate is 0.75, and the expected rate in one year is 0.78
If the expected rate is correct, which investment will yields a covered interest arbitrage opportunity? A) The U.S. Bond B) The German Bond C) They will have the same return D) This cannot be determined from the information given.
When taxpayers pay more in taxes because of inflation even when the nominal tax structure remains the same, this is called _____
a. indexation b. bracket creep c. tax expenditure d. nominal rigidity
In the theory of economic development, the competing strategy to the big-push is
a. unbalanced development with forward and backward linkages b. supply and demand c. balanced economic development d. real and money investments e. government spending (financed by taxes)
Suppose that the equilibrium price in the market for widgets is $5 . If a law increased the minimum legal price for widgets to $6, producer surplus
a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected.