When Prices Are Free to Adjust Over Time, in the Long

question 190

Multiple Choice

When prices are free to adjust over time, in the long run, the market price of a good tends to

• A) rise above the equilibrium price in the long run.
• B) equal the equilibrium price.
• C) fall below the equilibrium price in the long run.
• D) have no specific relationship to the equilibrium price.

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Definitions:

Nominal Rate

The interest rate stated on a loan or investment agreement, not taking into account the effects of inflation, and often differing from the real rate of interest.

Compounded Semi-annually

An interest calculation method where interest is added to the principal sum of a deposit or loan twice a year, leading to compound interest.

Effective Rate

The effective rate, also known as the annual equivalent rate, is the interest rate on an investment or loan that accounts for the effects of compounding over a given period.

APR

Annual Percentage Rate, which is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, credit card, etc.