If your local bank buys a few billion dollars worth of government securities, what happens to the economy's money supply?
What will be an ideal response?
If the seller of the bonds is another private business, there is no effect on the money supply. The money that might have supported spending and lending by the buying bank is now available for lending and spending by the seller(s) of the bonds. However, if the seller of the bonds is the Federal Reserve, then the money supply is reduced, since the decline in liquidity at the buying bank is not offset by an increase in liquidity elsewhere in the economy. (The bank's deposit at the Fed is reduced by the amount of its bond purchase; the money is not transferred to a different account, but ceases to exist.)
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The theory of investment that links investment spending to stock prices is known as the
A) multiplier model. B) accelerator model. C) neoclassical theory of investment. D) Q-theory of investment.
Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called
a. sales taxes. b. excise taxes. c. social insurance taxes. d. consumption taxes.
Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe
A) consumers will always buy goods and services at the lowest possible prices. B) consumers spend their incomes to order to accumulate the most goods and services. C) consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them. D) consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others.
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a
service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package? A) $20 B) $30 C) $60 D) $60 plus the value of his time