By law, banks are required to __________.
A) hold 100 percent of customer deposits as reserves.
B) hold a fraction of demand deposits as reserves.
C) hold a fraction of their reserves at the Federal Reserve bank.
D) lend out no more than the amount of their required reserves.
Ans: B) hold a fraction of demand deposits as reserves.
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John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000. If he does expand, there is a 30 percent chance he will earn $100,000, a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000. It will cost him $150,000 to expand. The expected value of John's earnings if he chooses to expand is:
A. $900,000 B. $140,000 C. $320,000 D. $230,000
The law of supply is illustrated by a supply curve that is:
a. Vertical b. Downward sloping c. Upward sloping d. Horizontal
Assume that the supply curve is horizontal because marginal cost is constant at $10. If John, Robert, and Jimmy each value one compact disc at $20 but only Jimmy values a second compact disc, then the total value in this market is $35 if
a. Jimmy’s value for a second compact disc is $0. b. Jimmy’s value for a second compact disc is $5. c. Jimmy’s value for a second compact disc is $10. d. Jimmy’s value for a second compact disc is $35.
If, when the price falls, total revenue increases, demand is
A) elastic. B) inelastic. C) unit elastic. D) perfectly inelastic. E) None of the above answers is correct because total revenue always decreases when the price of the good falls.