What is the principle monetary policy tool used by the Fed. Why?
What will be an ideal response?
The tool that the Fed primarily uses is open market operations. There are three reasons. First, because the Fed is the party that initiates the open market operations, it completely controls the volume. Second it can make the volume large or small, depending on how many U.S. Treasury securities it decides to buy or sell. Finally, it can implement this policy tool quickly. It does not have to change regulations and the administrative machinery is in place for it to make changes quickly.
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Asymmetric information contributes to
A) the adverse selection problem. B) the moral hazard problem. C) both the adverse selection problem and the moral hazard problem. D) neither the adverse selection problem nor the moral hazard problem.
Earning-sharing regulation involves
A) setting the monopoly's price equal to its average total cost. B) requiring that the monopoly share its profits with its customers if the profits rise above a certain level. C) setting a maximum price the monopoly may charge and maintaining it for many years. D) assuming a natural monopoly will not charge a higher than profit-maximizing price. E) setting the monopoly's price equal to its marginal cost.
Refer to Figure 7.1. The diagram above contains ________ cost curves
A) short run B) intermediate run C) long run D) both short run and long run.
According to U.S. antitrust enforcement guidelines, a merger is likely to be challenged if
A. the industry after the merger has an HHI above 1,800 and the HHI rises by more than 100. B. the industry after the merger has an HHI above 1,000 and the HHI rises by more than 10. C. the industry after the merger has an HHI above 1,800 and the HHI falls by more than 100. D. the HHI decreases after the merger.