Question

Suppose Joe lends Maxine $ 750 for the year. At the end of the year, Maxine repays Joe the $ 750 plus an additional payment of $112.50 for the use of Joe’s money during the year.

Maxine, when borrowing the funds from the Joe, anticipates the inflation rate for the year will be 10%, while Joe expects it to be 7 %. Inflation is actually 8% for the year. Which of the following statements is true?

Select one:

a. The nominal interest rate for this loan is 7%

b. Joe benefits unexpected from this higher than expected inflation rate.

c. The real interest rate for this loan is 7%

d. Maxine benefits unexpectedly from this lower tha expected inflation rate.

and:

Which of the following will shift the Canadian production possibilities curve outward?

Select one:

a. A nuclear war that destroys both people and structures

b. Producing fewer pizzas in order to produce more tractors

c. Producing fewer strawberries in order to produce more corn.

d. Increased immigration of scientists and engineers to Canada.

Answer 1

Q) The correct option is d.

the lender(joe) expects inflation rate of 7% but actual inflation rate is 8%.So the money which the joe got has lower purchasing power because of inflation higher than expected. Thus borrower(Maxine) benefits unexpectedly from this lower than expected inflation.

Q) The correct option is d.

Production possibility curve shifts outward because of immigration of scientists and engineers to canada. They may aid in improving the production technology and thus shifting of ppc.