13. Suppose that expected inflation is equal to the nominal interest rate. Also, the nominal interest rate is moderately high (e.g., 15%). Suppose that a firm wants to finance some physical investment-purchasing of new machines-by issuing new bonds. Also, assume that the real return of the new machines is positive. What will be the decision of the company? A. It won't invest because the nominal interest rate is too high. B. It will invest because prices will be higher in the future. C. It won't invest because the expected real interest rate is too low. D. It will invest because despite a low expected real interest rate, prices will be higher. E. It will invest because the expected real interest rate is lower than the real return of the new machines.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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13. Suppose that expected inflation is equal to the nominal interest rate. Also, the
nominal interest rate is moderately high (e.g., 15%). Suppose that a firm wants to
finance some physical investment-purchasing of new machines-by issuing new bonds.
Also, assume that the real return of the new machines is positive. What will be the
decision of the company?
A. It won't invest because the nomimal interest rate is too high.
B. It will invest because prices will be higher in the future.
C. It won't invest because the expected real interest rate is too low.
D. It will invest because despite a low expected real interest rate, prices will be higher.
E. It will invest because the expected real interest rate is lower than the real return
of the new machines.
14. Which of the following best explains why the decrease in the markup caused the
natural rate of unemployment to fall? A decrease in the markup shifts
A. the wage-setting relation leftward, decreasing the natural rate.
B. the price-setting relation downward, increasing the real wage.
C. the price-setting relation downward, decreasing the real wage.
D. the price-setting relation upward, increasing the real wage.
E. both the wage-setting and price-setting relation, decreasing the natural rate.
Transcribed Image Text:13. Suppose that expected inflation is equal to the nominal interest rate. Also, the nominal interest rate is moderately high (e.g., 15%). Suppose that a firm wants to finance some physical investment-purchasing of new machines-by issuing new bonds. Also, assume that the real return of the new machines is positive. What will be the decision of the company? A. It won't invest because the nomimal interest rate is too high. B. It will invest because prices will be higher in the future. C. It won't invest because the expected real interest rate is too low. D. It will invest because despite a low expected real interest rate, prices will be higher. E. It will invest because the expected real interest rate is lower than the real return of the new machines. 14. Which of the following best explains why the decrease in the markup caused the natural rate of unemployment to fall? A decrease in the markup shifts A. the wage-setting relation leftward, decreasing the natural rate. B. the price-setting relation downward, increasing the real wage. C. the price-setting relation downward, decreasing the real wage. D. the price-setting relation upward, increasing the real wage. E. both the wage-setting and price-setting relation, decreasing the natural rate.
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