Why do banking panics normally lead to recessions?
What will be an ideal response?
Bank failures can directly affect the ability of households and firms to spend by wiping out some of the wealth they hold as deposits. Shareholders of banks also suffer losses to their wealth when banks fail. Households and firms that relied on failed banks for credit will no longer have access to the loans they need to fund some of their spending. Finally, by destroying checking account deposits, bank failures can result in a decline in the money supply.
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Pluralistic ignorance exists when
A) the members of a group believe one thing but mistakenly assume that most of the other members believe something else. B) a group of bystanders all agree that something needs to be done but each feels less personal responsibility for taking action because each perceives that there are others who could take action. C) a majority of people in a group do not have the intellectual capacity of arriving at a viable solution to a public goods problem. D) the least-capable member of a group exerts his influence over the rest of the group when trying to arrive at a decision on how to internalize an externality.
The long run is a time frame in which
A) the quantities of some factors of production are fixed and the quantities of other factors of production can be varied. B) the quantities of all factors of production can be varied. C) the quantities of all factors of production are fixed. D) all costs are sunk costs.
Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage, causing unit costs to __________.
Why is the international financial system today often called a "nonsystem?"