Suppose that Bill and Ted use a tit-for-tat scheme to encourage cartel pricing and Bill chooses the low price for a single month. Bill and Ted will deviate from cartel pricing for two months.

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. The CPI over that year rises from 180 to 200. What is the real interest rate you are paying?

A) 15% B) 5% C) -1.1% D) -6.1%

Refer to the graph below. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will:

A. Self-correct through a shift in AS, which brings output back to Q1
B. Self-correct through a shift in AD, which brings output back to Q1
C. Need the government to implement expansionary policy in order to bring output back to Q1
D. Need the government to implement contractionary policy in order to bring output back to Q1