Do people make decisions on the basis of the nominal interest rate or the real interest rate? What is the relationship between the two interest rates?
What will be an ideal response?
People make their decisions on the basis of the real interest rate since decisions are always made on the basis of relative and not absolute prices. The nominal interest rate equals the real interest rate plus the anticipated rate of inflation.
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Increase in consumer confidence will ________ the expenditure curve:
A) decrease. B) increase. C) down. D) none of the above.
Referring to the previous question, what will happen to the equilibrium price and quantity of cars?
A) They will stay the same as domestic producers replace the cars once imported. B) The shortage will cause the equilibrium price to increase and equilibrium quantity will decrease. C) The surplus will cause equilibrium price to decrease and equilibrium quantity to increase. D) The shift in the demand curve will cause equilibrium price to increase and quantity to increase.