What is the difference between economies of scale and economies of scope? Provide an example of each that pertains to financial institutions.
What will be an ideal response?
Economies of scale are the lowering of average cost as output increases. For example, a lender can spread the cost of developing a single loan application and single lending contract over many loans. Economies of scale are the lowering of average cost as output increases. For example, as a lender learns and develops special skills in obtaining information on loan applicants the cost of processing these applications will fall. Economies of scale result from exploiting gains from specialization. Economies of scope imply, for example, that one firm producing two different products can do so at a lower total cost than two firms producing one product each. For example, a bank may find that it can issue both credit cards and installment loans at a lower total cost than one bank issuing only credit cards and another making only installment loans.
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The short-run Phillips curve is ________, and the long-run Phillips curve is ________
A) downward sloping; downward sloping B) downward sloping; vertical C) vertical; downward sloping D) vertical; upward sloping E) upward sloping; vertical
An autonomous decrease in money demand, other things equal, shifts the ________ curve to the ________
A) IS; right B) IS; left C) LM; left D) LM; right
The idea that the interaction of the multiplier and accelerator alone generates business cycles supports the view that the economy is
a. dependent on external shocks, such as housing booms, to stimulate investment which triggers the economy into a cycle b. always moving toward its equilibrium position, albeit not without going through a cyclical path c. always at full employment because the interaction is a chronic stimulant to the economy d. always stable, closely following the trend line of economic growth e. inherently unstable
The central bank in the United States is known as the Federal Reserve System
a. True b. False Indicate whether the statement is true or false