You borrow at a nominal interest rate of 10 percent. If the inflation rate is 4 percent, then the real interest rate is

You explain to your roommate Surya, who makes beaded headbands, about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices

She contends that the theory is incorrect because over the past two years she has lowered the price of her headbands and yet has seen a decrease in sales. How would you respond to Surya? A) I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices. B) Surya is right; she has evidence to back her claim. The theory must be erroneous. C) Surya is making the mistake of assuming that correlation implies causation. D) I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income.

When economists say the price elasticity of supply is elastic, they mean that

a. suppliers are willing to produce much larger amounts of their good. b. suppliers are willing to produce only a small amount more of their good. c. consumers are willing to purchase much larger quantities of the good. d. the change in quantity supplied is relatively small compared to the change in price.