In the 1970s, nominal interest rates in the United States were quite high, while real rates were extremely low
Which group "wins" in this circumstance, lenders or borrowers? What might explain the willingness of the "losers" to accept disadvantageous loan terms?
Borrowers "win" when the real interest rate is low. The lenders' "generosity" is mostly because lending terms are based on expected inflation. If actual inflation turns out to be higher than expected, the real cost of borrowing is lower than had been expected. Also, most loans are made by financial institutions that are in the business of "selling" money. When expected inflation is high, some lenders might try to attract borrowers by offering a nominal interest rate that does not compensate fully for the expected inflation. That is, the lender accepts a lower real interest rate in order to increase its loan business.
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Using the above figure, during which of the following periods does the price of crude oil shows an upward trend?
A) May to November B) May to July and October to December C) July to October D) April to November
In the Primary Metals industry, it is estimated that the elasticity of output with respect to labor is 0.51 and the elasticity of output with respect to capital is 0.73. These two measures indicate that the primary metals industry is characterized by
A) decreasing returns to scale. B) constant returns to scale. C) increasing returns to scale. D) no returns to scale.