Suppose you obtain a fixed rate mortgage during a period of relatively high inflation. During the next ten years, inflation falls. Are you a winner or a loser due to inflation? Explain why
What will be an ideal response?
You would be a loser under this scenario. Your mortgage rate is the sum of the real rate of interest plus the amount of inflation that was expected over the life of the mortgage. When inflation is high, people's expectations of future inflation are high. In those circumstances, your fixed mortgage rate contains a high expected-inflation premium. Therefore, as inflation falls, the real rate of interest on your mortgage increases.
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Which of the following will not cause a demand curve to shift position?
a. A doubling of the good's price b. A doubling of the price of a closely substitutable good c. A doubling of income d. A shift in preferences
Table 1.1 shows the hypothetical trade-off between different combinations of Stealth bombers and B-1 bombers that might be produced in a year with the limited U.S. capacity, ceteris paribus.Table 1.1Production Possibilities for BombersCombinationNumber of B-1 BombersOpportunity cost (Foregone Stealth)Number of Stealth BombersOpportunity cost (Foregone B-1)S0NA10 T1 9 U2 7 V3 4NAOn the basis Table 1.1, what is the opportunity cost of producing at point V rather than point U?
A. 4 Stealth bombers. B. 3 Stealth bombers. C. 3 B-1 bombers. D. 1 B-1 bomber.