If the Pure Rate of Interest Is 5 Percent Per

question 55

Multiple Choice

If the pure rate of interest is 5 percent per year,a riskless asset that guarantees to pay the owner $2,000 per year forever is worth

• A) $10,000.
• B) $20,000.
• C) $30,000.
• D) $40,000.
• E) an infinite amount.

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Definitions:

Binding Price Ceiling

A government-imposed limit on how high a price can be charged for a product, set below the market equilibrium price, leading to shortages.

Decreases

A reduction in size, quantity, or degree; the opposite of increases.

Tax

A mandatory monetary fee or tax levied by a government on individuals or organizations to finance public spending.

Price Elasticity

An indicator of the sensitivity of the demand for a product to fluctuations in its price.