Compare the supply curve in the market for bank reserves prior to 2008 with the supply curve following the financial crisis.
What will be an ideal response?
The supply curve in the market for bank reserves is initially vertical until the market federal funds rate reaches the discount rate. At that point banks will borrow from the Fed rather than paying the higher interest rate in the market. At that point the supply curve becomes horizontal. Graphically, it looks something like an uppercase F without the lower horizontal piece, or an L that has been flipped upside down. Following the quantitative easing that took place in response to the financial crisis, the reserve supply became vertical because banks have significant excess reserves, making the reserve demand become perfectly elastic at the IOER rate and removing the need for the Fed to lend elastically at the discount rate.
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________ refers to funds available for immediate payment
A) Term deposits B) Velocity C) Mutual funds D) Liquidity
The methods that governments use to support farmers vary, but they almost always involve some or all the following methods EXCEPT
A) pay farmers a subsidy. B) introduce a price floor. C) isolate the domestic market from global competition. D) tax farmers. E) use price supports.
The terms of trade refer to:
A) rules and regulations that govern trade between nations. B) product of the opportunity cost of producing the same good in two trading nations. C) exchange rate of goods for goods. D) amount of money that has to be given up to import an additional quantity of a good.
Why do multinational corporations typically pay vastly different wage rates for the same work in different countries?
A) Prospective employees have much better alternative opportunities in some countries than in others. B) The cost of living is much lower in some countries than in others. C) The demand for labor is much more elastic in some countries than in others. D) Supply and demand determine wage rates in some countries but not in others. E) Unions exist in some countries but not in others.