Luigi is willing to lend Klaus $5,000 for one year at a nominal rate of interest of 7%. Both Luigi and Klaus expect the rate of inflation to be 2% in the next year. If the actual rate of inflation over the year was 1%, what is the real return did Luigi receive?
A. 4%
B. 5%
C. 8%
D. 6%
Answer: D
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When a teacher in a private school points out to her high school principal that since there are empty seats in all classrooms, the cost of additional students is really zero, she is using the
a. law of comparative advantage. b. principle of marginal analysis. c. theory of externalities. d. notion of the cost decreases of the service sector. e. concept of opportunity cost.
the amount by which equilibrium GDP falls short of full-employment GDP
What will be an ideal response?
One undesirable effect of social regulation is that it
A) affects smaller firms disproportionately, creating anticompetitive effects. B) destroys incentives for firms to engage in marginal cost pricing. C) raises prices of goods to consumers, while lowering prices to business and special interest groups. D) reduces the effectiveness of economic regulation.
The multiplier represents the ratio of the total shift in aggregate demand to the
A) initial shift in aggregate demand. B) total shift in long-run aggregate supply. C) initial shift in short-run aggregate supply. D) total shift in short-run aggregate supply.