Suppose that the federal funds rate and the discount rate are equal initially at 3%. If the discount rate is then lowered to 2.5%, to whom will a bank be more likely to go for a loan: the Federal Reserve or another bank? Explain your answer in detail, and be sure to mention the impact that this situation would have on the money supply
When the Fed lowers the discount rate below the federal funds rate, it encourages banks to borrow reserves from the Fed. This would lead to an increase in reserves in the banking system. With more reserves, the bank can create more loans (more checkable deposits), and the result will be an increase in the money supply.
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If the U.S. interest rate rises relative to the interest rate in other countries, then the supply of dollars ________ and the demand for dollars ________
A) does not change; does not change B) decreases; increases C) decreases; decreases D) increases; decreases E) increases; increases
During the twentieth century, the market structure of the U.S. economy has
A) become less competitive. B) remained about the same. C) become more competitive. D) become mostly monopolies.
During the Great Depression, real interest rates
A) rose to unprecedentedly high levels. B) rose only slightly above the long-run trend. C) fell to unprecedentedly low levels. D) fell only slightly below the long-run trend.
With a linear production function in labor only, which of the following must be true?
A) The representative household works as much as possible. B) The representative firm makes large profits. C) The real wage equals total factor productivity. D) The marginal product of labor exceeds the real wage.