How does an open-market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.
What will be an ideal response?
When the Fed buys government securities from banks it pays for the securities by increasing the reserves of the banks at the Fed. Banks have more reserves and, therefore, more excess reserves since there has been no corresponding increase in deposit liabilities. This increase in excess reserves allows banks to increase their lending, which will increase the money supply. The increase in the money supply will shift the money supply schedule outward and cause a decrease in the level of equilibrium interest rates. Panel (a) of Figure 29-4 in the text is the appropriate graph to illustrate the effects of an expansionary monetary policy on interest rates.
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Amy can produce either 5000 pounds of cheese or 20 cars per year. Mike can produce either 5000 pounds of cheese or 10 cars per year. Mike's opportunity cost of producing one pound of cheese is ________ car(s).
A. 1/500 B. 500 C. 1/250 D. 1/10
Which of the following markets comes closes to the model of perfect competition?
A) automobile industry B) information technology industry C) aerospace industry D) agriculture
Al B. Core works at a Fresh Fish Market. The market sells fresh fish from 9 a.m. until 7 p.m. every day. The store does not sell day-old fish, so all unsold fish are thrown away at 7 p.m. each day. If Al has lots of fresh fish left at the end of the day that cost him $300 to acquire, what should Al do? a. Lower the price of the remaining fish, even if he can't recover his $300
b. Lower the price of the remaining fish, but under no circumstances should the price fall below $300 for the remaining fish. c. Throw the fish away even if he could sell some of them at a discounted price. d. Starting tomorrow, lower the price on all fish so they will all be sold by mid-day.
Oligopolistic agreements on price tend to be unstable because
a. although the monopoly price is the best price for all firms, oligopolists are unaware of this and thus charge prices that are lower than the price that could be charged by a monopolists, therefore, decreasing social welfare. b. although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tend to break down. c. the demand for the products of oligopolistic industries is inherently unstable relative to the demand for the products of non-oligopolistic industries because demand for products in oligopolistic industries are dependent on changes in consumer tastes and preferences. d. firms in oligopolistic industries have more concern for consumers than do firms in competitive industries.