A firm in monopolistic competition has some degree of price-setting power because
A) in the long run it earns a normal profit.
B) it can never earn less than normal profit.
C) the price it charges is never more than its marginal cost.
D) if it raises its price, the quantity it can sell will not decrease to zero.
D
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People expect an inflation rate of 5 percent and the real interest rate is positive. Consequently the nominal interest rate will be
A) more than 5 percent. B) 5 percent. C) less than 5 percent. D) Without more information it is impossible to tell if the nominal interest rate will be more than, less than, or equal to 5 percent.
The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B B. recessionary; C C. recessionary; A D. expansionary; A