Suppose the rate of inflation unexpectedly decreases from 6% to 4%. Which one of the following would most likely benefit from this unexpected reduction in the rate of inflation?
A. creditors.
B. debtors.
C. workers who are covered by a COLA agreement.
D. a borrower whose loan has a fixed nominal interest rate.
Answer: A
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List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic
What will be an ideal response?
An unanticipated shift to a more restrictive monetary policy by the Fed will
a. increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand. b. reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand. c. increase real interest rates, leading to higher asset prices that will stimulate aggregate demand. d. reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.