For this question, assume that firms experience a reduction in ...

[mmm]

For this question, assume that firms experience a reduction in sales. We would expect that this decrease in sales will cause
 
  A) an increase in profit per unit of capital.
  B) a decrease in profit per unit of capital.
  C) no change in profit per unit of capital.
  D) ambiguous effects on profit per unit of capital.
  E) none of the above

Question 2

Because expected inflation is typically positive, we know that
 
  A) the nominal interest rate is generally less than the real interest rate.
  B) the real interest rate is generally less than the nominal interest rate.
  C) the nominal and real interest rates are generally equal.
  D) the real interest rate is approximately equal to zero.

[taylorsonier]

Answer to Question 1

B

Answer to Question 2

B