Which of the following about inflation is true?
a. High and variable rates of inflation will be easy for decision makers to forecast accurately.
b. Unanticipated inflation is an increase in the general level of prices that was not expected by most decision makers.
c. In contrast with unanticipated inflation, anticipated inflation implies that the increase in the general level of prices was expected by borrowers but not lenders.
d. Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers.
B
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Assume you pay a premium of $0.50/bu for a put option with a strike price of $4.00/bu and that the current futures price is $3.75/bu. Then, the option is:
A. In-the-money B. At-the-money C. Out-of-the-money D. None of the above
For each pair of goods, explain which is more elastic: toothpicks vs. cars; electricity vs. yachts; IBM computers vs. Apple computers