The effect of an increase in the expected inflation in the equilibrium in the loanable funds market. Concept introduction: Expected Inflation- This refers to the anticipated increase in the level of prices over a given period of time resulting from the subjective views about price trends in future. In other words, prices today are affected by what they may be tomorrow culminating into expected inflation. Fisher Effect In the late 1930s, U.S. economist Irving Fisher established an economic hypothesis i = r + π e This implies that the nominal or the current interest rate is the real interest rate adjusted for the rate of inflation.

Question

The Firm's Output Decision (Study Plan 12.2) Use the following table to work Problems 4 to 6. Pat's Pizza Kitchen is a price taker. Its costs are Output (pizzas per hour) Total cost (dollars per hour) 0 10 1 21 2 30 3 41 4 54 5 69 4. Calculate Pat's profit-maximizing output and economic profit if the market price is (i) $14 a pizza. (ii) $12 a pizza. (iii) $10 a pizza. 5. What is Pat's shutdown point and what is Pat's economic profit if it shuts down temporarily? 6. Derive Pat's supply curve.

Answer 1

Question

Chapter 7, Problem 3.9P

To determine

The effect of an increase in the expected inflation in the equilibrium in the loanable funds market.

Concept introduction:

Expected Inflation- This refers to the anticipated increase in the level of prices over a given period of time resulting from the subjective views about price trends in future. In other words, prices today are affected by what they may be tomorrow culminating into expected inflation.

Fisher Effect

In the late 1930s, U.S. economist Irving Fisher established an economic hypothesis

i=r+πe

This implies that the nominal or the current interest rate is the real interest rate adjusted for the rate of inflation.

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