Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C1 and C2). Any funds not spent in period 1 will earn interest (at the rate r), which will increase purchasing power in period 2 . Consider four possible reactions to an increase in r: I. C1 increases. II. C1 decreases. III. C2 increases. IV. C2 decreases. Which of these is consistent with the
hypothesis that both C1 and C2 are normal goods?
a. I, II, III, and IV.
b. I, II, and IV, but not III.
c. I, III, and IV, but not II.
d. II and III, but not I and IV.
e. I, II and III, but not IV.
e
Economics
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Who benefits from a higher than expected inflation rate?
a. Lenders and workers. b. Lenders and businesses. c. Borrowers and workers. d. Borrowers and businesses. e. None of the above.
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In a purely competitive labor market, a profit-maximizing firm will hire labor up to the point where the marginal revenue product of labor equals the:
A. Wage rate or price of labor B. Price of the product C. Marginal cost of one extra unit of output D. Average cost of each unit of output
Economics