Question 1

Explain whether you agree or disagree with the following statement: "The reason that inflation is bad is because it increases the cost of living the costs of goods and services we buy -- without increasing income in general."

Accepted Answer

The answer of Explain whether you agree or disagree with...

Question 2

If an economy experiences deflation,the real interest rate

Accepted Answer

Deflation means the general level of prices is falling. When this happens, the purchasing power of money increases over time. The real interest rate adjusts the nominal interest rate for the effect of inflation (or deflation). In a deflationary environment, because the value of money is increasing, the real interest rate (which reflects the true cost of borrowing when adjusted for changes in purchasing power) will be higher than the nominal interest rate (the stated rate without adjustment for inflation/deflation).

Question 3

The recession of 2007-2009 and its aftermath had different effects on various sectors of the economy.Which of the following sectors of the U.S.economy had the highest unemployment rate in August 2011,topping 12 percent?

Accepted Answer

Construction sector had the highest unemployment rate of over 12 percent in August 2011, as it was one of the sectors hardest hit during the recession. Many construction projects were put on hold or canceled, leaving many workers unemployed.

Question 4

If inflation is unanticipated,no redistribution of income can occur.

Accepted Answer

Unanticipated inflation can lead to a redistribution of income, as it affects different groups differently. For example, if wages do not increase at the same rate as prices, workers' purchasing power decreases, leading to a transfer of income from workers to producers. Similarly, lenders who receive fixed interest payments during inflation lose purchasing power, while borrowers benefit from repaying loans with devalued currency.

Question 5

Describe how inflation can be costly even if it is anticipated.

Accepted Answer

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Question 6

When the actual inflation rate turns out to be greater than the expected inflation rate,who gains -- the borrower or the lender -- and who loses? Explain why.

Accepted Answer

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Question 7

If inflation is anticipated,some effects of inflation on the redistribution of income can be avoided.

Accepted Answer

If inflation is anticipated, individuals and businesses can adjust their behavior and make necessary changes to avoid or minimize the effects of inflation on their income and wealth. For example, they may invest in assets that provide protection against inflation, negotiate higher wages and salaries or adjust their pricing strategies to offset the impact of inflation. Therefore, anticipated inflation can help reduce the redistributive effects of inflation.

Question 8

The costs to firms of changing prices are called menu costs.

Accepted Answer

This is true. Menu costs refer to the expenses incurred by firms in terms of time, money, and effort when changing prices. These costs include the cost of printing new menus or catalogs, updating price lists, and training employees on new prices.

Quiz 20: Unemployment and Inflation