Describe how inflation can be costly even if it is anticipated
What will be an ideal response?
First, there will be redistribution as some incomes fall behind even an anticipated level of inflation. Second, firms and individuals must hold money to perform transactions. Those holding money lose purchasing power at a rate equal to inflation. Third, firms must pay individuals to change prices. These costs, called menu costs, can be substantial at very high levels of inflation. Fourth, investors have to pay higher taxes on interest and capital gains income as the government taxes nominal interest and capital gains income. Investors then lose real after-tax income.
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Which of the following will NOT shift the short-run aggregate supply (SRAS) curve?
A) a reduction in the price of a raw material B) technological progress C) a change in the wage rate D) a change in the price level
Explain what is included in M1 and M2. Is all of M1 money? Is all of M2 money?
What will be an ideal response?
If the inflation rate is greater than the nominal interest rate, then the
A) real interest rate will be negative. B) real interest rate will be positive. C) inflation rate will increase. D) inflation rate will decrease. E) nominal interest rate will be negative.
In the beauty contest where players predict the outcome of players choosing a number between 0 and 100
A) the Nash equilibrium is 0. B) your prediction should be based on what you think the winning number will be. C) the Nash equilibrium is 33. D) there is no Nash equilibrium because people are not rational.