At the beginning of a year, decision makers expect the general level of prices to increase at a 6 percent annual rate. The CPI increases from 150 to 154.5 during the year; this indicates that
a. decision makers underestimated the rate of inflation during the year.
b. decision makers overestimated the rate of inflation during the year.
c. decision makers accurately forecast the rate of inflation during the year.
d. the rate of inflation during the year was 4.5 percent.
B
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Excess capacity is a characteristic of monopolistically competitive firms. What does excess capacity mean?
A) It means that firms hire more than the minimum number of workers needed to produce the profit-maximizing level of output. B) It means that firms build plants that are not large enough to achieve minimum efficient scale. C) It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves. D) It means that firms produce with inefficient combinations of resources.
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
A) -3%. B) 3%. C) 6.67%. D) 15%.