An increase in the demand for loanable funds will occur if there is
A) an increase in the real interest rate.
B) an increase in the nominal interest rate accompanied by an equal increase in inflation.
C) a decrease in the real interest rate.
D) an increase in expected profits from firm investment projects.
D
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There are two types of worker, high ability and low ability. High-ability workers generate gross profit of A on the job and low-ability generate nothing. Education does not make workers more productive, but is costly to obtain (cH for high ability workers and cL for low ability ones). Let w be the wage that all firms in the economy pay by regulatory mandate. Suppose the worker obtains utility
given by the wage (if the worker is employed, 0 if not) minus the cost of education (if any). There is no disutility from work. Which condition is required if only the high-ability type is to obtain an education in equilibrium? a. cH < w < cL. b. cL < w < cH. c. cH < cL < w. d. cL < cH < w.
Is there downward price inflexibility applicable to today’s economy? What factors might explain it?
What will be an ideal response?