As price declines, quantity demanded goes _______ and quantity supplied goes ________.

Why is there a deadweight loss associated with subsidy payments?

A) There is no deadweight loss from a subsidy. B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced. C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them. D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

Let: (1 ) Pt be the price of one unit of a market basket of goods (i.e., a composite commodity) in year t; (2 ) Pet + 1 be the expected price of one unit of a market basket of goods in year t + 1; (3 ) ?et + 1 be the expected rate of inflation between period t and t + 1; and (4 ) it be the one-year nominal interest rate. Suppose an individual borrows the equivalent of one unit of a composite

commodity today. Given this information, which of the following expressions represents (i.e., is equal to) the real interest rate (rt)? A) (1 + it)(Pet+1)/(Pt) B) (1 + ?et+1)/(1 + it) C) {(1 + ?et+1)/(1 + it)} - 1 D) {(1 + it)(Pt)/(Pet+1)} - 1 E) none of the above