People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power. If inflation and income grow at the same rate, is this complaint valid? Explain carefully
What will be an ideal response?
If inflation and income grow at the same rate, real income will be constant as inflation increases both total expenditures and total income by the same amount. All of the money that a business receives on the sale of its product must be paid out as income to the owners of the factors of production. If the prices of final goods and services increase (inflation), then there is more money for the businesses to pay out as income. Therefore, on average, the buying power of income will remain constant. The complaint is not valid.
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In the above figure, when the economy is in a long-run equilibrium, the price level will be
A) 90. B) 100. C) 110. D) 120.
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 40%, and the excess reserve ratio = 0, a decrease in the required reserve ratio to 5% causes the M1 money multiplier to ________, everything else held constant
A) increase from 2.8 to 3.11 B) decrease from 3.11 to 2.8 C) increase from 2 to 2.22 D) decrease from 2.22 to 2
Assuming no bequests, with a real interest rate of 10 percent, wealth of $60,000, current income of $70,000, current consumption of $30,000 and future income of $100,000, future consumption equals ________
A) $30,000 B) $70,000 C) $100,000 D) $210,000
Craft unions attempt to increase wages in their profession by
a. increasing labor demand b. decreasing labor demand c. decreasing labor supply d. increasing labor supply e. exclusive dealing contracts