Author Question: During an inflationary period, a household with savings of 100,000 A) loses because inflation ... (Read 101 times)

shenderson6 · **on:** Jun 29, 2018

During an inflationary period, a household with savings of 100,000

A) loses because inflation increases the real tax on the interest paid.
B) gains because the inflation gives savers more money and so more purchasing power.
C) loses because the inflation increases the after-tax real interest rate.
D) gains because inflation increases the value of their savings.
E) neither gains nor loses because inflation does not affect savers.

Question 2

What is the law of diminishing returns? Give an example of what the law of diminishing returns implies.

What will be an ideal response?

whitcassie · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

The law of diminishing returns is the observation that as the quantity of one input increases with the quantities of all other inputs remaining the same, output increases but by ever smaller increments. Hence, as more workers (or capital) are used by a firm, each additional worker (or unit of capital) increases output, but by less than previous worker (or unit of capital). For instance, a law firm might have one paralegal typing briefs on one personal computer. Hiring an additional paralegal will increase the number of briefs, but with only one personal computer, the additional paralegal will not double the number of briefs. Similarly, buying another computer, while employing only one paralegal, might increase the number of briefs typed, but will not double the number.