Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves. How do reserves affect the amount of loans a bank can make?
What will be an ideal response?
Actual reserves are equal to the bank's reserves it keeps on deposit at the Federal Reserve plus the currency in the bank's vault. Desired reserves are the reserves that the bank wants to hold. The amount of desired reserves is equal to the desired reserve ratio multiplied by the bank's deposits. Excess reserves equal actual reserves minus desired reserves. A bank can make loans equal to the amount of its excess reserves.
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A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent." Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001. Based on the information given, what is the price elasticity of demand for ice cream? A) 12% B) 0.75 (in absolute value) C) 1.33 (in absolute value) D) We do not have enough information to calculate the elasticity.
What type of variables have their movements explained by theory?
A) endogenous B) exogenous C) autonomous D) Both B and C
In an economy like the United States, the impact of a decrease in import prices on overall inflation can be best described as:
A. a modest increase. B. nonexistent. C. a significant decrease, particularly as globalization and trade increase. D. a modest decrease.
The only way to judge monopoly is to use both structure and performance criterion simultaneously.
Answer the following statement true (T) or false (F)