Discuss the determinants of the equilibrium interest rate and how it may change. What can the Fed do to change the interest rate?
The interest rate is determined through the interaction of the demand and supply of money. The demand for money consists of the transactions, precautionary and speculative demands for money. The demand for money curve is downward sloping reflecting the inverse (negative) relationship between the quantity of money demanded by people and the interest rate. The supply of money curve is expressed as a vertical line because it is independent of the rate of interest. The supply of money can be changed by the Fed changing required reserves, the discount rate and by using open market operations. The Fed should increase the money supply to reduce interest rates.
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Which of the following statements is true about profit?
A) Profit refers to the revenue received from the sale of a quantity of goods. B) The terms "accounting profit" and "economic profit" can be used interchangeably. C) Profit is calculated by multiplying price and quantity sold. D) Profit is the difference between revenue and cost.
When the owners of a company hire full-time executives to make the day-to-day decisions, this __________ the __________ problem
A) alleviates; stockholder-lender B) alleviates; manager-stockholder C) exacerbates; stockholder-lender D) exacerbates; manager-stockholder
The process of combining many different debt instruments like home mortgages into a pool of hundreds of thousands of individual contracts and then selling new financial instruments is called
A) Securitization. B) Leveraging. C) Sub-priming. D) NINJA loaning.
The aggregate production function is an equation that shows the relationship between ________ and ________
A) the inputs employed by firms; the maximum output firms can produce with those inputs B) the inputs employed by an individual firm in an economy; the average of the inputs employed by all firms in an economy C) the output produced by an individual firm in an economy; the average of the output produced by all firms in an economy D) the average level of capital used in production in an economy; the average level of labor used in production in an economy