If the real interest rate and the nominal interest rate are both negative and equal to each other, then the
A. inflation premium is zero.
B. inflation premium is also negative.
C. inflation premium is positive.
D. economy must be in a recession.
Ans: A. inflation premium is zero.
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The domestic currency value of the return on a foreign investment when the foreign currency proceeds are sold in the forward market, is defined to be the
A) covered return. B) uncovered return. C) forward return. D) Both B and C.
The Great Recession of 2008-09 was an ideal case for fiscal policy because:
A. a healthy financial sector improves the timeliness of expansionary fiscal policy. B. targeting and timeliness are less important when a recession is the result of the bursting of an asset bubble. C. the most-easy-to-target sectors were those that were the most affected by unemployment. D. targeting and timeliness are less important when a recession is very severe and lasts a long time.
An apple farmer must decide how many apples to harvest for the world apple market. He knows that there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.50, and a one-third probability that it will be $2. His cost function is C(Q) = 0.01Q2. The expected profit-maximizing quantity is:
A. 150. B. 0. C. 90. D. 75.
In the above figure, the individual's consumer surplus will be highest if
A) the price of ice cream is $5 per gallon. B) the price of ice cream is $3 per gallon. C) the price of ice cream is $2 per gallon. D) ice cream is free.