Suppose that there are two countries (Ireland and Belgium) negotiating the government debt criteria for the Eurozone. Ireland has a high ratio of government debt to GDP; Belgium has a low ratio of debt to GDP. Which country is likely to prefer a higher inflation target?
A) Belgium, because the real value of its government debt will approach zero faster than Ireland's over time
B) Ireland, because higher inflation will cause larger absolute reductions in the real value of its government debt than in Belgium
C) It makes no difference because high rates of inflation will have proportional effects on the real debt of both countries.
D) both, because each wants to see its real government debt decline
Ans: B) Ireland, because higher inflation will cause larger absolute reductions in the real value of its government debt than in Belgium
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Which of the following statements is true?
A) Production in a perfectly competitive market is efficient because resources in the market leave those sectors in which price cannot cover their costs of production and enter those sectors where price can cover their costs of production. B) Production in a perfectly competitive market is suboptimal because absence of free entry and exit of firms allows firms to specialize in only one particular industry. C) Production in a perfectly competitive market is Pareto inefficient because the government or a central planner carefully analyzes the needs and requirements of the society and instructs firms on what to produce and in what quantity. D) Production in a perfectly competitive market is Pareto efficient because the government or a central planner carefully analyzes the needs and requirements of the society and instructs firms on what to produce and in what quantity.
On a bank's T-account, which are part of the banks liabilities?
a. both deposits made by its customers and reserves b. deposits made by its customers but not reserves c. reserves but not deposits made by its customers d. neither deposits made by its customers nor reserves