Why are real interest rates more important than nominal interest rates with regard to analyzing the supply and demand of loanable funds?
Nominal interest rates only indicate the amount of dollars that are paid or received as interest. Real interest rates indicate the amount of purchasing power paid or received as interest. Borrowers are more influenced by the purchasing power than they will sacrifice to borrow money; similarly savers are more influenced by the purchasing power they will receive for on their deposits.
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The exchange rate is volatile because
A) the demand curve and the supply curve are horizontal. B) when a relevant factor changes, demand and supply tend to change in opposite directions. C) the demand curve is vertical. D) the supply curve is vertical. E) when a relevant factor changes, demand and supply tend to change in the same direction.
The required reserve ratio is the ratio of reserves to ________ required by banking regulations
A) deposits B) loans C) profits D) currency
Assume the market for cage-free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market
A) the supply curve will shift to the left and the equilibrium price will increase. B) the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. C) the demand curve will shift to the left and the equilibrium price will decrease. D) the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.
Answer the following statements true (T) or false (F)
1) All else equal, a cartel sets the price higher and produces less than in a competitive market. 2) Each firm in a cartel has an incentive to cheat on the agreement and produce less than the bargained amount. 3) Firms in a cartel produce a quantity at which marginal revenue exceeds marginal cost. 4) If new firms enter a cartel market, the cartel can either incorporate the new firms into the agreement or exclude them, but regardless of inclusion or exclusion, the probability that the cartel will survive decreases. 5) In order to sustain a cartel, members are required to sign binding contracts.