In Which of the Following Situations Would You Prefer to Be

question 67

Multiple Choice

In which of the following situations would you prefer to be the lender?

• A)The interest rate is 9 percent and the expected inflation rate is 7 percent.
• B)The interest rate is 4 percent and the expected inflation rate is 1 percent.
• C)The interest rate is 13 percent and the expected inflation rate is 15 percent.
• D)The interest rate is 25 percent and the expected inflation rate is 50 percent.

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Definitions:

Variable Cost

Expenses that change in proportion to the level of production or sales activities of a company, such as raw materials and direct labor costs.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive, typically represented by an area on a graph.

Supply Curve

A graph displaying the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to provide, holding all else equal.

Diminishing Marginal Product

A principle stating that as more of a variable input is added to a fixed input, the additional output produced from each additional unit of the variable input eventually decreases.