Explain how price expectations can affect the supply of a product
What will be an ideal response?
If sellers expect the price of the product to rise in the future, they will want to hold onto their product and sell it at that time. Therefore, their current supply will fall. Likewise, if sellers expect the price of their product to fall in the future, they will want to sell as much of their product as possible today, increasing the supply.
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If the central bank buys foreign assets,
A) the domestic monetary base will decline. B) domestic short-term interest rates will decline. C) the foreign-exchange value of the domestic currency will rise. D) its holdings of international reserves will rise.
If the nominal interest rate is 8 percent and the inflation rate is 3 percent, then the real interest rate equals:
A. 8 percent. B. 11 percent. C. 3 percent. D. 5 percent.