The marginal revenue of a monopolistically competitive firm option(a) can be negative if the firm charges a low price and sells a large quantity of the good.
What is marginal revenue?Marginal revenue is an increase in income resulting from the sale of an additional unit of product. Even though marginal revenue can remain constant over a certain output level, it will eventually decrease as output increases due to the law of diminishing returns.
Firms that are ambitious should produce output until marginal revenue approaches marginal cost.
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a bond with duration of 10 years has a yield to maturity of 10 percent. this bond's volatility (modified duration) is
The bond's volatility (modified duration) is 9.09%
How are bonds volatile?volality = duration / ( 1 + yield )
so,
10/(1.10) =9.09%
Bonds will always be less volatile than equities on average since their revenue flow is better understood and more predictable. The performance of equities is surrounded by more uncertainties, which raises their risk level and volatility.The volatility of a bond refers to how much its price changes as a result of shifting interest rates. The coupon rate and the date of retirement of a bond affect its volatility (at maturity or call date).The longest durations are typically seen in bonds with extended maturities and low coupons. These bonds are more volatile in a rate environment where interest rates are fluctuating because they are more susceptible to changes in market rates.To learn more about bonds refer to:
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selling the same goods to different targeted groups at different prices is called: group of answer choices cost customization. cost personalization. price discrimination. cost optimization. price gouging.
Selling identical items to one-of-a-kind focused agencies at one-of-a-kind costs is called price discrimination.
What's price discrimination?Price discrimination is a promoting approach that costs clients one-of-a-kind costs for identical products or services primarily based totally on what the vendor thinks they are able to get the purchaser to agree to. In natural fee discrimination, the vendor costs every purchaser the most fee they will pay.
In greater, not unusual place varieties of fee discrimination, the vendor locations clients in agencies primarily based totally on positive attributes and costs every organization a one-of-a-kind fee.
Price discrimination is practiced primarily based totally on the vendor's notion that clients in positive agencies may be requested to pay greater or much less primarily based totally on positive demographics or on how they fee the products or services in question.
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queen manufacturing uses 2,300 switch assemblies per week and then reorders another 2,300. the relevant carrying cost per switch assembly is $9.00 and the fixed order cost is $1,150. a. what is the current carrying cost? (do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. what is the order cost? (do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. what is the eoq? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Companies use the economic order quantity (EOQ) calculation to determine their ideal order size, which enables them to meet demand without overspending.
EOQ is calculated by inventory managers to reduce holding costs and excess inventory.
The economic order quantity is equal to sqrt((2 * Annual Demand * set up Cost) / (Holding Cost)) = sqrt((2 * 2300 * 52 * 1150) / 9) = 5528.512 switch. Current Carrying Cost = ((2300 / 2) * 9) = $10350. The order costs are equal to ((2300 * 52) / 2300) * 1150) = $59,800.
What is EOQ and how does it work?
The following is the formula for EOQ: Demand is equal to the square root of EOQ, or [(2 x demand x ordering cost) / carrying cost].According to EOQ's assumptions, demand remains constant. The number of units sold or the amount of inventory used annually is the demand.
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question content area under the inventory method, accounting records maintain a continuously updated inventory value. a.periodic b.physical c.retail d.perpetual
The perpetual inventory approach involves continuously updating the inventory value in accounting records.
What inventory method is applied to maintain an updated inventory value in accounting records?Manual inventory inspections are no longer required thanks to perpetual inventory, a computerized point-of-sale system that constantly logs inventory changes in real time.
Which of the following inventory management systems keeps a running tally of the price of items both on hand and sold?The perpetual inventory system continuously monitors inventory balances. This is accomplished by automated systems that track inventory purchases and sales utilizing enterprise asset management (EAM) and point-of-sale (POS) technology.
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all of the following strategies may encourage participative management except: select one: a. task delegation. b. parallel suggestion involvement. c. job involvement. d. theory x management.
Except for theory X management, any of the following tactics may promote participatory management.
People who adhere to Theory X detest their jobs, lack ambition, and shun accountability. This presumption leads managers to drive their workforce using a rigorous "carrot and stick" strategy that rewards superior performance and penalizes subpar performance.
The significance of increased oversight, outside rewards, and outside sanctions is explained by Theory X. When it comes to inspiring others, Theory X takes an authoritarian stance. This strategy makes several important assumptions, one of which is that the typical employee despises their job and will do everything to escape it.
The second tenet of theory X is that in order to motivate individuals to contribute to corporate objectives, they must be intimidated or coerced.
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many economists believe that the trend toward greater wage inequality across the u.s. economy was primarily caused by . group of answer choices the recession new technologies the rise of global markets inflation
Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by new technologies.
A region's economy is its capacity for the creation, exchange, and consumption of goods and services. Generally speaking, it is described as a social domain that places an emphasis on the practices, discourses, and material manifestations connected to the production, use, and management of scarce resources. A system of interconnected production and consumption activities makes up an economy, and these activities ultimately decide how resources are distributed within a society. Economists research intricate data and statistics and use the information they glean to advise businesses on financial matters. As an economists, you would investigate and keep an eye on economic trends as well as develop statistical models to forecast future events. An economist is a specialist who investigates how a society's resources affect its output or production.
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explain how international tourism could assist in reducing the current sizable u.s. trade deficit. how could it increase the deficit?
The status of tourism is the same as that of a country's trade because it is seen as an invisible export.
A country's trade or exports are equivalent to the number of tourists it receives. Greater tourists bring in more revenue for the country's commerce activities.
For instance, a Chinese traveler to the US will stop at the Grand Canyon, Yellowstone, Alaska, and Niagara Falls, among other locations. He will be demanding a number of things at each of these locations, including hotel accommodations, transportation, meals, and other things he will be purchasing. All of these needs will contribute to the cost of those US manufacturing factors, just like an exporter would.
Tourism thereby reduces the trade deficit by bringing in foreign cash like trade does.
It also works the other way around; take the example of an American tourist who travels to India and spends money there. He will travel with US dollars and make purchases in India just as he would have done if India had been an exporter of goods to the US. Due to increased US purchases of Indian goods, the trade deficit will rise.
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marisa wants to buy 100 shares of ibm at $90 per share. her regular, full-service broker will charge her a commission of two percent. she can complete the transaction with an online broker for a fixed commission of $19. how much would she save by buying stock online?
She can execute the sale online through a brokerage for a flat commission of $19, saving her $161 in total.
What is the Commission EU law?New European legislation must be planned, prepared, and proposed by the European Commission. It has the authority to take this action voluntarily. The legislation it suggests musSuppose she purchases 200 shares of Watson at $90 each.
Briefing:Consequently, 100 units will be issued=100 x 90 = $9000
Her customary brokerage will pay But if she's doing it internet, she must pay a flat $19 commission them 2% for this purchase, according to the question, therefore
2% of 18,000 = $180
But if she's doing it internet, she must pay a flat $19 commission.
hence she saved $161.
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How is socialism present within the American free enterprise system, give three
examples?
Answer:What is being offered by contemporary socialists are fairy tales, and we should not mistake them for the truth. These portrayals of socialism and their caricature of capitalism are inaccurate, vacuous, and utopian. Socialism takes from those who work, take risks, innovate, educate themselves, or save and gives to those who do not—or to those who have political power. A century ago, at the advent of the Russian Revolution, one could be a socialist and hope in good faith that socialism could achieve, or at least advance, its utopian aspirations. Now, socialism has a long record of dismal failure. In fact, it has been tried many dozens of times and failed each time.
Explanation:
if the economy is shrinking, firms with low operating leverage will experience . a. higher decreases in profits than firms with high operating leverage b. similar decreases in profits as firms with high operating leverage c. smaller decreases in profits than firms with high operating leverage d. no change in profits e. none of the above
Firms with low operating leverage will experience smaller decreases in profits if the economy shrinks than firms with high operating leverage.
Leverage is an American action crime drama television series that ran on TNT from December 7, 2008 until December 25, 2012. Electric Entertainment, a production firm run by executive producer and director Dean Devlin, produced the series. Leverage features a five-person team lead by former insurance investigator Nathan Ford, who uses their expertise to carry out heists to battle corporate and political injustices perpetrated on ordinary folks.
Leverage was renewed for a fourth season on July 30, 2010. It debuted on June 26, 2011, and aired for 18 episodes, ten in the summer and eight in the winter.
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on september 1 year 1 the central illinois university ticket office sold 1800000 worth of season basketball tickets ten home games will be played four game will be playing during year 1 and six games will be played during year 2 what is the adjusted balance in deferred revenue account at december 31 year 1
The adjusted balance in deferred revenue account at December 31 will be 1,080,000.
What is adjusted balance?Adjusted balance is one of several methods used by credit card companies to calculate a cardholder's cost of funding. The latter is the fee charged if the cardholder keeps a monthly balance rather than paying the balance in full by the due date of each month.The adjusted balance method for calculating loan fees uses the last balance of the most recent billing cycle and subtracts all payments and credits made during the current billing cycle.If you made one or more purchases underPlan It, your credit will be adjusted until those purchases are refunded.If I choose the automatic reconciled balance payment option, American Express will charge my designated account for the adjusted balance shown on my statement.To learn more about adjusted balance from the given link :
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kasper film co. is selling off some old equipment it no longer needs because its associated project has come to an end. the equipment originally cost $22,500, of which 75% has been depreciated. the firm can sell the used equipment today for $6,000, and its tax rate is 40%. what is the equipment's after-tax salvage value for use in a capital budgeting analysis? note that if the equipment's final market value is less than its book value, the firm will receive a tax credit as a result of the sale.
Kasper film co. is selling off some old equipment . The equipment's after-tax salvage value for use in a capital budgeting analysis is $ 5850
Calculating the problem:Original cost = $ 22,500
Depreciation = $ 16,875
Book value = $ 22, 500 - $ 16, 875
= $ 5,625
Sale value = $ 6000
Book value = $ 5625
Capital gain = $6000 - $ 5625
= $ 375
Tax = $ 150
Available cash flow = $ 6000
Tax = $ 150
Net cash flow = $ 5850
What's expressed by capital budgeting?Capital budgeting is the process a business undertakes to estimate implicit major systems or investments. structure of a new factory or a big investment in an outer adventure are exemplifications of systems that would bear capital budgeting before they're approved or rejected.
What's capital budgeting advantages?Capital budgeting helps a company conclude the colorful pitfalls involved in an investment occasion. And how these pitfalls affect the returns of the troop. It helps the company to estimate which investment attachment would yield the stylish possible return.
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assume a risk-free return is 3%. the beta of a managed fund is 1.8, the alpha is 0.5%, and the average return is 6%. based on jensen's measure of portfolio performance, the return on the market portfolio equals:
The calculation of the market portfolio's return is displayed below:
30.56%
As we are aware of
Alpha is equal to the average return minus the risk-free return plus beta (return on investment minus risk-free return).
0.005 is equal to 0.06- [0.03 + 1.8 (return on market portfolio - 0.03)].
[0.03 + 1.8 return on market portfolio - 0] - 0.005 = 0.06 .03]
0.005 is equal to 0.06, 0.03, 1.8 return on market portfolio, and 0.03
1.8 return on market portfolio = 0.06 - 0.03 + 0.03 - 0.005.
1.8 return on market capitalization equals 0.055
Consequently, the market portfolio's return is
= 0.055 ÷ 1.8
= 0.03056
=30.56%
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the government decides to construct greenbelt to make the city look more beautiful. the marginal cost of the greenbelt is $2000q $4000 (the unit of q is acre). suppose there are 1,000 people in the city, each values the greenbelt at $10 per acre. how many acres of greenbelt will the government construct?
The government will create a 3-acre greenbelt.
A "marginal cost" is the increase or decrease in price related to producing goods or providing services to an additional consumer. often referred to as incremental cost.
to increase revenue Businesses can forecast the number of units produced at which costs and revenues will be equal by plotting marginal cost and revenue. The company's revenue will be maximized by producing this many units because any extra units will result in a loss.
The concept of marginal cost is essential to economic theory because, in order to maximize profits, a company can only produce until its marginal cost (MC) equals its marginal income (MI) (MR). Beyond that, the expense of manufacturing a new product will exceed the profit.
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austertech, a u.s. company, produces computer parts and sells them to south american countries. austertech is engaging in the international business activity known as .
Austertech, a u.s. company, produces computer parts and sells them to south American countries. austertech is engaging in the international business activity known as Exporting.
An export in worldwide exchange is a great produced in one united states of america this is offered into every other united state of america or a service furnished in a single united states of america for a national or resident of some other us of a. the seller of such goods or the service issuer is an exporter; the overseas purchaser is an importer. Exporting may be profitable for organizations of all sizes.
On average, sales develop faster, extra jobs are created, and employees earn greater than in non-exporting corporations. aggressive gain. america is known worldwide for excessively nice, progressive goods and services, customer support, and sound enterprise practices.
the hobby of sending items to some other country with a purpose to promote them there: the exportation of sth the primary commercial enterprise of the port is the exportation of grain and agricultural produce.
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a data analyst wants to create a shareable report of their analysis with documentation of their process and notes explaining their code to stakeholders. what tool can they use to generate this?
For creating dynamic documents using R, there is a file format called Markdown. To save, arrange, and document code, utilise R Markdown documents.
Dynamic documents are those that include both text and a programming language's output in a format that updates the output whenever the code is run. Because the code and the results are well-documented, using dynamic documents significantly increases research transparency. The last ten years have seen terrible digital documents. In their static form, there is always a chance that version control will be lost, or even worse, the document will be saved somewhere and forgotten.
For formatting text using a plain-text editor, Markdown is a simple markup language. As a markup language that is appealing to human readers in its source code form, Markdown was developed by John Gruber and Aaron Swartz in 2004. Markdown is frequently used in documentation pages, readme files, online forums, instant messaging, blogging, and instant messaging.
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How much more per week does a college grad earn compared to someone with some college?.
Many individuals think that attending college is the only real path to success, but this is generally untrue… Going to college does, however, significantly increase your chances of landing better-paying professions.
A neutral tone that doesn’t support any side or harbour any emotions or beliefs is referred to as being objective. Right, neutral just implies neither or. In other words, you aren’t actively playing one side right now, merely gaining some momentum on both sides of the issue. Let’s move backwards: As opposed to statements or proof based on truth, the fourth answer choice is primarily about opinion. Simply put, there are more jobs. An opinion has already been expressed in this.Someone may find number three more appealing than their topic. If that still doesn’t make sense, let me try again. The author opted to focus on the reader rather than both sides of the argument, and he also used the word “probably,” which is a conjecture. Recall that we’re not here to speculate.
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a fund complex currently operates a web site to provide details regarding the investment philosophy behind each of its funds and to provide general commentary on the state of the world's stock and bond markets. under finra rules, this web site is considered:
A fund complex currently operates a Web site to provide details regarding the investment philosophy behind each of its funds and to provide general commentary on the state of the world's stock and bond markets. Under FINRA rules, this Web site is considered retail communication.
There are many different types of investment philosophy, each with its own risks and rewards. Some common investments include stocks, bonds, and real estate. When deciding what to invest funds in, it's important to consider your goals and risk tolerance.
Some investments are more likely to generate a higher returns, but they also come with more risk. It's important to find a balance that meets your needs.
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ou would like to have enough money saved to receive $80,000 per year in perpetuity after retirement for you and your heirs. how much would you need to have saved in your retirement fund to achieve this goal? (assume that the perpetuity payments start one year from the date of your retirement. the annual interest rate is 8 percent.)
You need to have saved $1,000,000 in your retirement fund to achieve this goal.
In the field of finance, a security that generates an endless supply of cash is known as perpetuity. It functions as a kind of perpetual annuity. The quantity of the regular cash flows is simply divided by the discount rate to get the present value of a perpetuity.
Calculate how much would need to be saved in your retirement account for you to reach this objective.
We will use the perpetuity equation,
PV=C/r
Where, C=Perpetuity after retirement
r=Annual interest rate
Now, put the values in the formula,
PV = (80,000/0.08)
PV= $1,000,000
Therefore, $1,000,000 in retirement savings would be required for you to reach this goal.
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write how vermicompost is prepared in a pit
Explanation:
Vermicomposting pits are mainly used by farmers. These farmers dig a large hole that serves the purpose of burying worms and organic waste material. Pits made for vermicomposting are usually 1 m deep and 1.5 ms wide.
during its first year, concord, inc., showed an $18 per-unit profit under absorption costing but would have reported a total profit $18,900 less under variable costing. if production exceeded sales by 700 units and an average contribution margin of 60% was maintained, what is the apparent:
the following makes the consumer price index (cpi) a less accurate measure of the cost of living:
the existence of a new goods bias in the calculation of the cpithe existence of a quality change bias in the calculation of the cpiThe Consumer Price Index (CPI) measures the monthly change in prices paid by consumers in the United States. The CPI is calculated by the Bureau of Labor Statistics (BLS) as a weighted average of prices for a basket of goods and services representative of total U.S. consumer spending.
The CPI is one of the most widely used indicators of inflation and deflation. The CPI report employs a different survey methodology, price samples, and index weights than the PPI, which measures changes in prices received by U.S. producers of goods and services.
The Consumer Price Index (CPI) is the most widely used measure of inflation, with policymakers, financial markets, businesses, and consumers closely following it. The widely quoted CPI is based on an index that covers 93% of the US population, while a related index is used to adjust federal benefits for cost-of-living adjustments. Housing rents estimate changes in shelter costs, including owner-occupied housing, which accounts for nearly one-third of the CPI.
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an informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as a(n)
An informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as a(n) c. account receivable
In the field of business, an account receivable can be described as the money that a customer has to pay to a company or brand from which he had made a purchase but hasn't paid for the product.
Normally, a time frame of 30-60 days is given by the brand for payment during which it is necessary to clear the required payment.
Usually, an account receivable situation arises when you purchase a product online, the product gets delivered to you and you are yet to pay for it.
Although a part of your question is missing, you might be referring to this question:
an informal credit arrangement with a customer for payment within 30 to 60 days after the sale is classified as a(n)
a. note payable
b. nontrade receivable
c. account receivable
d. prepaid receivable
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which of the following statements is true?a. when the fed sells government bonds, the money supply decreases.b. the federal reserve was created in 1871 in response to the civil war.c. the primary tool of monetary policy is the reserve requirement.
The true statement is- When the Fed sells government bonds, the money supply decreases.
What are the government bonds?
A government issues a debt security known as a government bond to fund its obligations and expenses. Periodic interest payments on government bonds are known as coupon payments. Since the issuing government backs government bonds, they are frequently seen as low-risk investments.
Sovereign debt is another name for government securities issued by the federal government.
In the secondary market, some Treasury bonds are traded. Through this market, individual investors can buy and sell previously issued bonds in collaboration with a financial institution or broker. The U.S. Treasury, brokers, and exchange-traded funds (ETFs), which hold a variety of securities, all offer easy access to buying Treasuries.
Government fixed-rate bonds may be subject to interest rate risk, which happens when rates are rising and investors are holding fixed-rate bonds that pay less than the market average. Additionally, only a few bonds are able to stay up with inflation, a measurement of price increases across the board in the economy. When prices in the economy rise by 1.5% and a fixed-rate government bond pays 2% annually, for instance, the investor only makes a real return of 0.5%.
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g which of the following statement is not correct about data and information? a. data is an essential resource, like other assets in organizations. b. data are raw facts representing a phenomenon. c. information is the result of the processing of data. d. mostly, business intelligence and analytics use data collected using questionnaires
Mostly, business intelligence and analytics use data collected using questionnaires.
A business is a enterprising organization or entity that engages in commercial activity. They may be industrial, commercial, or other types. Businesses that are for profit operate with the intention of making a profit, while those that are nonprofit focus on charitable purposes.
Analytics is the process of identifying, explaining, and sharing important patterns in data. Simply put, analytics enables us to see information and insights that we might otherwise miss.
Data analytics is the science of examining unprocessed data to draw inferences about that data. A company can increase productivity, maximize profit, or make better decisions based on data analytics to improve performance.
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a few years ago, michael purchased a home for $292,000. today the home is worth $350,000. his remaining mortgage balance is $132,000. assuming michael can borrow up to 80 percent of the market value of his home, what is the maximum amount he can borrow?
The price at which a property would trade in a competition auction environment is known as its market value, or OMV. Despite the fact that these phrases have different meanings under various standards and can have variations in some situations, market value is usually used interchangeably with market price, fair value, and fair market value.
What is market value ?The cost that an asset would fetch on the open market or the assessment that the financial sector makes of a particular equity or company is known as market value, often known as OMV or "open market valuation."
The price at which a house would sell in a regular market is its market value. Sales occurring from unanticipated circumstances like a move, a relative's passing, or any other circumstance where the seller is forced to sell the home are excluded from this.
One of the main reasons market value is important is that it provides a straightforward method for determining how much an asset is worth, removing any uncertainty or confusion. A product's value is frequently seen differently by buyers and sellers in the market place.
The industry the company or asset is in, its overall profitability, how much debt it has taken on, and other factors all have an impact on market value.
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advertising encourages wholesalers and retailers to carry the products of a specific manufacturer. select one: a. institutional b. b2b comparison c. trade d. advocacy
A trade advertisement encourages wholesalers and retailers to carry the products of a specific manufacturer.
Advertising is the practice and strategies used to draw attention to a product or service. Advertising attempts to draw attention to a product or service by putting it in the spotlight. It is often intended to promote a certain commodity or service, but it has a wide range of applications, the most prevalent being commercial advertising.
Commercial advertising frequently strive to boost consumption of their products or services by "branding," which equates a product name or image with certain traits in the minds of consumers. Direct-response advertising, on the other hand, is used to encourage an immediate sale. Advertising can also serve to reassure employees or shareholders that a company is viable or profitable.
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the parol evidence rule applies to agreements that are: multiple choice preliminary negotiations. not finalized. fully integrated. completed after a written contract.
The parol evidence rule is applicable to fully integrated agreements. It does not permit the parties to reach an oral agreement after entering into the written agreement.
Parol is a verbal term or word. Verbal evidence, such as a witness' testimony at a trial. Extraneous evidence, such as an oral agreement, or even a written agreement, that is not included in the relevant written instrument, is referred to as parol evidence in the context of contracts, deeds, wills, or other writings. The parol evidence rule is a principle that protects the integrity of written documents or agreements by barring parties from attempting to change the meaning of the document by using prior and contemporaneous oral or written declarations that are not referenced in the document. Contract terms are frequently presented, discussed, and negotiated before being incorporated in the final contract.
The parol evidence rule applies to integrated contracts and states that when parties put their agreement in writing.
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why must price cover average variable costs if the firm is to continue operating? if price is less than average variable costs, the firm can minimize losses by producing where marginal cost equals price. the firm can continue to operate because costs will be covered. fixed costs will exceed losses. the firm will minimize its losses by shutting down.
Price must cover average variable cost if the firm is to continue operating as the D) firm will minimize its losses by shutting down.
Price must include AVC or firms will lose more by continuing to operate than by ceasing to exist. Firms will lose not only their fixed costs but also a portion of their variable costs if they produce output when the price is below the average variable cost.
Businesses can keep their losses to their fixed expenses by ceasing operations when the average variable cost exceeds the price. The shutdown point, which indicates the price at which the company would run out of customers to pay its variable expenses, is the junction of the average variable cost curve and the marginal cost curve.
The perfectly competitive firm is at least covering its average variable costs if the market price is above the shutdown point.
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which option for avoiding a labor shortage gives speedy results and the ability to easily change to a different strategy at a later date? multiple choice technological innovation new external hires temporary employees retained transfers turnover reductions
Temporary employees for avoiding a labor shortage gives speedy results and the ability to easily change to a different strategy at a later date.
What are the popular strategies for overcoming a labour shortage ?The two strategies that are most frequently used to address labour shortages are outsourcing and hiring temporary workers. Hiring temporary and contract workers as well as outsourcing work are two of the most popular strategies for overcoming a labour shortage.
The typical organisational response to a labour shortage has been to outsource or hire temporary workers, both of which are quick and highly revocable. Industrialists were unconcerned about the lack of workers or the high cost of living. As machines required significant capital investments, they preferred using human labor.
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behavioral economists have discovered that people view a 2% decrease in their income without inflation as unfair but a 3% increase in their income in the presence of 5% inflation as fair. a. what are the nominal and real rates of change in their incomes?
-2% are the nominal and real rates of change in their incomes. The sum of the real interest rate and the anticipated rate of inflation is referred to as the nominal interest rate.
We should mention that the real interest rate is determined as follows based on the information provided in the question:
Inflation rate - nominal interest rate
The true interest rate in this scenario will then
be:
= 3%-5%
= -2%
Real income change is -2%.
Nominal income change = 3%
The propensity of the money illusion is what causes people to believe that the salary reduction is unfair. This simply means that one considers of money in nominal terms, which is in its far value form, rather than in terms of its purchasing power, or in real terms.
A real interest rate indicates the true return on a bond and a loan (to the lender) (to the investor). The nominal interest rate is the amount that banks, debt issuers, and investment companies advertise for loans and different types of investments.
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