Why is wage and price flexibility an important assumption of the classical model?
A) Flexible wages and prices guarantee that there will be no scarcity.
B) Flexible wages and prices allow business firms to fool their workers through the money illusion.
C) Flexible wages and prices allow business firms to fool their customers through the money illusion.
D) Flexible wages and prices allow markets to reach equilibrium.
D
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The real interest rate equals the
A) nominal interest rate - inflation rate. B) nominal interest rate + inflation rate. C) (nominal interest rate ÷ inflation rate). D) inflation rate - nominal interest rate. E) (nominal interest rate + inflation rate) × 100.
The observation that people tend to value something more highly when they own it than when they don't is called the
A) endorsement effect. B) endowment effect. C) path-dependent effect. D) wealth effect.